Enhanced KYC or Enhanced Due Diligence by Indian Crypto Exchanges

Cryptocurrency transactions in India are governed by various laws and regulatory frameworks, although the legal landscape has been evolving rapidly espcially after Financial Intelligence Unit (FIU) coming into the picture. Here are some key laws and regulations that apply:

1. Reserve Bank of India (RBI) Regulations: The RBI, India's central bank, has issued various guidelines and notifications regarding the use of cryptocurrencies. In April 2018, the RBI issued a circular prohibiting banks and financial institutions from providing services to cryptocurrency businesses. However, this circular was overturned by the Supreme Court of India in March 2020, allowing banks to provide services to crypto businesses once again. Despite this, the RBI has expressed concerns about the risks associated with cryptocurrencies.

2. Securities and Exchange Board of India (SEBI) Regulations: SEBI, the regulatory body for securities markets in India, has been exploring regulations for cryptocurrencies and initial coin offerings (ICOs). While SEBI does not directly regulate cryptocurrencies, it has indicated its intention to regulate crypto assets as securities in the future.

3. Prevention of Money Laundering Act (PMLA): Cryptocurrency exchanges and businesses are subject to anti-money laundering (AML) and counter-terrorist financing (CTF) regulations under the PMLA. This includes implementing customer due diligence (CDD) measures, maintaining transaction records, and reporting suspicious transactions to the Financial Intelligence Unit-India (FIU-IND).

4. Goods and Services Tax (GST): The sale of cryptocurrencies may be subject to GST in India. However, the applicability of GST to cryptocurrency transactions is still a matter of debate and interpretation. Recently we reached out to Central Board of Indirect Taxes and Customs (CBIC) which is a part of the Department of Revenue under the Ministry of Finance, Government of India to find out Governments stand regarding GST on Crypto. Their responses were as follows:

   1. This is to inform you that the seller of cryptocurrency or digital assets is required to collect GST from the buyer and deposit it with the 
      Government. There Is no defined HSN Code and GST Rate for digital assets. Thus, HSN Code 960899 under the category 'others' with a tax rate 
      of 18% should be used for reporting the sale of crypto. The seller can claim Input Tax Credit of the following: GST paid on the purchase of 
      cryptocurrency, NFT, VDA, GST paid on services used for the business of crypto trading such as consultancy services, software expenses, broker 
      commission, mining cost, etc.

   2. This is to inform you that Crypto or digital assets can be obtained through crypto exchanges or mining, i.e. self-generation. As per GST Law, the supplier of goods levies and collects GST. Accordingly, the seller of crypto or digital assets needs to pay GST and collect from their buyer irrespective of sale executed through exchanges or any other means.
      Further, only those persons will be liable to pay GST whose sales/turnover crosses the threshold limit during the financial year or who have registered themselves under GST voluntarily.
       

      

      

5. Income Tax Regulations: Profits from cryptocurrency trading are subject to income tax in India. Traders and investors are required to report their cryptocurrency transactions and pay taxes accordingly.

6. Foreign Exchange Management Act (FEMA): FEMA regulates foreign exchange transactions in India. The RBI's guidelines on cross-border transactions impact crypto trading activities.

It's important to note that the legal status of cryptocurrencies in India is still evolving, and regulatory clarity is still awaited on many aspects. Traders and investors should stay informed about the latest developments and consult legal experts for guidance on compliance with applicable laws and regulations.

Seek expert guidance on minimizing the risk due to Enhanced Due Diligence action in India. Our paid consultations offer tailored strategies to safeguard your investments and navigate potential pitfalls effectively. Speak to our experts today for personalized advice and proactive measures to keep your trading activities compliant and secure.

DISCLAIMER

The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that we are not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. CA Mitesh and Associates is India's leading Crypto Taxation Firm which is committed to helping people navigate complex tax laws and banking regulations. Our main aim is to assist the individuals with applicable laws & regulations compliance and providing support at each & every level to make sure that they stay compliant and grow continuously. For any query, help or feedback you may get in touch here - Appointment with CA. Please note the all consultations with the CA are Paid consultations.

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