India’s New Crypto Rules: Selfies, Deepfakes, and Tax Havens? 😱

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India’s Financial Intelligence Unit (FIU) has introduced stricter compliance requirements for cryptocurrency platforms, significantly enhancing identity verification for users nationwide.

Under the new rules, regulated crypto exchanges are required to verify users through live selfie authentication and geographic location data during the onboarding process. Because nothing says “trust me” like a wobbling chin and a GPS pin. 🌍📸

India’s Enhanced Verification Standards Target Deepfakes and Static Images

The latest FIU rules take user verification further than simple document checks. Exchanges must use live selfie verification that requires dynamic movement, such as eye-blinking or head turns, to confirm the user’s presence. This step aims to prevent static images or deepfake attacks from bypassing identity controls. 🤖👀 (Deepfakes: because nothing says “I’m real” like a 3D-printed smile.)

As noted by the Times of India, platforms must collect details at sign-up, including latitude, longitude, date, timestamp, and IP address. Because if you’re not careful, the government might think you’re a ghost. 👻

“The RE (crypto exchange) shall also ensure that the client whose credentials are being furnished at the time of onboarding is the same individual who is actually accessing the application and personally initiating the account creation process,” the guidelines read. A noble goal, assuming the user isn’t a rogue parrot with a smartphone. 🦜📱

The framework also expands documentation requirements. In addition to a Permanent Account Number (PAN), users must submit a secondary form of identification. This may include a passport, Aadhaar card (a 12-digit unique identification number issued by the Indian government), or a voter ID. Because why stop at one proof of existence when you can have three? 📜

Furthermore, email addresses and mobile numbers will undergo one-time password (OTP) verification to ensure accuracy. The penny-drop method, involving a small, typically refundable, bank transaction of 1 rupee, further verifies that the user owns the submitted account. Because nothing says “I’m legit” like getting nickle-and-dimed by bureaucracy. 💰

Notably, users flagged as high-risk will face enhanced and more frequent compliance checks under the new FIU rules. This includes individuals with ties to tax havens, regions on the Financial Action Task Force (FATF) grey or blacklists, politically exposed persons (PEPs), or non-profit entities. Because nothing says “I’m shady” like being a non-profit. 🎩

Specifically, these users will have their KYC details updated every six months, compared with an annual refresh for standard users. Exchanges are also required to apply enhanced due diligence. Because if you’re not under scrutiny, are you even a crypto user? 🕵️♂️

Beyond onboarding, the FIU takes a tough stance on anonymity-enhancing tools (mixers/tumblers and similar products) used to conceal transaction trails. Moreover, the guidance “strongly discourages” Initial Coin Offerings (ICOs) and Initial Token Offerings (ITOs). Because nothing says “innovation” like a government that thinks privacy is a crime. 🔒

According to the regulator, such activities present “heightened and complex” risks related to money laundering and terror financing. They are viewed as lacking a clearly justified economic rationale. Or, you know, they’re just trying to avoid the government’s watchful eye. 👀

Strict Tax Regime Drives Users to Offshore Platforms

In addition to stricter oversight, India taxes crypto profits at a flat 30%. Each transaction also incurs a 1% tax deducted at source (TDS). Analysts have stated that this tax framework is “backfiring,” arguing that it discourages domestic trading activity and prompts users to shift to offshore platforms. Because nothing says “investor-friendly” like a tax rate that makes Robin Hood look generous. 🏹

“If we were to summarise in one line – the tax framework, implemented and enforced non-uniformly across industry participants – has led to a marked migration of users and liquidity towards offshore platforms,” a report revealed. A bold claim, but then again, who needs liquidity when you have a 30% tax rate? 💸

According to the report’s estimates, Indian users generated approximately ₹4,87,799 crore in trading volume on offshore exchanges between October 2024 and October 2025. This equals roughly $54.1 billion. That’s enough to fund a small interstellar war, if anyone still remembers how to build a starship. 🚀

By comparison, offshore trading activity attributed to Indian nationals totaled ₹2,63,406 crore ($29.2 billion) in the previous year. This represents an 85% year-over-year increase. Because nothing says “I trust my government” like moving your money to a tax haven. 🏦

The report noted that 91.5% of Indian crypto trading now occurs offshore, while only 8.5% remains on registered domestic exchanges. That’s about as balanced as a teetering tower of Jenga blocks. 🎲

“The uncollected TDS since October 2024 is ₹4,877 crore. If calculated from the date of introduction, this number goes up to ₹11,000 crores,” the analysts highlighted. “Talking about capital flight, and loss of capital gain collections for the Government, we conservatively estimate the revenue loss to the exchequer at approximately ₹36,000 crores since introduction of the 30% tax.” A staggering figure, or as the government might say, “a minor setback in our quest for fiscal responsibility.” 📉

The growing compliance requirements and severe taxation present a challenge for India’s crypto space. While new KYC rules aim to promote transparency and prevent crime, high tax rates are driving users abroad, thereby reducing revenue. The balance between oversight and domestic engagement remains uncertain, with the crypto industry at a critical crossroads. It’s a tale as old as time: trust vs. control, regulation vs. rebellion, and the eternal question of whether the government can outsmart a blockchain. 🧠

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2026-01-12 16:19