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Crypto exchange India refers to Virtual Asset Service Providers (VASPs) — platforms that facilitate buying, selling, and trading of Virtual Digital Assets (VDAs) in India. From March 2023, all such entities are mandated to register with FIU-IND under the Prevention of Money Laundering Act, 2002 (PMLA).
Definition
A crypto exchange (or VDA exchange) is a platform that matches buyers and sellers of Virtual Digital Assets, provides custody of user VDA holdings and INR balances, and settles trades. Exchanges may be centralised (CEX — with a legal entity, KYC, order book) or decentralised (DEX — smart-contract based, no central operator). The FIU-IND PMLA mandate and §194S TDS obligations apply primarily to centralised exchanges with identifiable operators.
Indian exchanges that were operational before the March 2023 PMLA gazette were given a compliance window. Non-compliant exchanges faced FIU-IND show-cause notices and potential blocking by ISPs and payment processors. Several international exchanges (including Binance, Kraken, and others) received FIU-IND show-cause notices in late 2023 for non-registration.
Regulatory status in India
Crypto exchanges in India face a multi-layer compliance framework:
- FIU-IND PMLA Registration (mandatory from March 2023): All VASPs must register with the Financial Intelligence Unit — India under §2(1)(sa) of PMLA, 2002, as amended by Finance Act 2023. Obligations include KYC, Customer Due Diligence (CDD), suspicious transaction reporting (STR), and record-retention. Gazette S.O. 1072(E), 7 March 2023, is the operative notification.
- GSTN Registration: Crypto exchanges are treated as "intermediaries" providing services and are subject to GST. Exchanges must register under GST; brokerage / platform fees attract 18% GST.
- §194S TDS deduction: Exchanges must deduct 1% TDS on VDA sale consideration and deposit via TRACES. They must issue TDS certificates (Form 16A) to users.
- RBI: Crypto exchanges are not licensed by RBI and do not hold banking licences. However, following the March 2020 Supreme Court ruling, banks may service VDA exchange accounts at their discretion.
- SEBI: Crypto exchanges are not registered with SEBI as stock brokers, depositories, or investment advisers. VDA transactions are not SEBI-regulated securities transactions.
Reporting threshold: VDA exchanges are understood to report user transaction data to the Income Tax Department (via AIS/Form 26AS) for cumulative annual transactions exceeding ₹10 lakh, per PMLA high-value transaction reporting norms.
Tax treatment
From an exchange's perspective: platform fees (trading commissions) are business income subject to corporate income tax and GST. From a user's perspective, the exchange is the deductor of §194S TDS; see 1% TDS on Crypto for the mechanics. The exchange itself does not bear the §115BBH tax — that liability is the seller's. The exchange's TDS deduction is a collection-at-source mechanism on behalf of the government.
Operational considerations
For Indian VDA investors, using a FIU-IND registered exchange provides: (a) automatic §194S TDS deduction (removes self-reporting burden for exchange transactions); (b) Form 26AS prefill of VDA sale transactions (eases ITR filing); (c) PMLA-compliant KYC, which is now a prerequisite for banking connectivity. Investors should download full transaction history annually from the exchange before filing ITR — exchanges are required to maintain records for 5 years under PMLA Rule 3.
P2P transfers and overseas exchange transactions outside FIU-IND registered entities require self-assessed TDS via Form 26QE and manual Schedule VDA reporting in ITR.
Worked example
Scenario: Siddharth uses a FIU-IND registered Indian exchange. In FY 2024-25, he sells VDAs aggregating ₹12,00,000 in total consideration. The exchange deducts TDS throughout the year.
TDS and tax calculation:
- Total sale consideration: ₹12,00,000
- TDS @1% deducted by exchange: ₹12,000
- Total cost of acquisition of VDAs sold: ₹7,00,000
- VDA income (§115BBH): ₹12,00,000 − ₹7,00,000 = ₹5,00,000
- Tax @30% + 4% cess: ₹5,00,000 × 31.2% = ₹1,56,000
- Less TDS credit: ₹12,000
- Net tax payable: ₹1,44,000
- Exchange reports ₹12,00,000 in AIS; Siddharth's ITR Schedule VDA must match
Note: This example is illustrative. Consult a qualified tax professional for individual advice.
See also
- Virtual Digital Asset (VDA)
- 1% TDS on Crypto (§194S)
- Crypto Tax India (§115BBH)
- Crypto Wallet
- Tax on Investments in India — Complete Guide
Primary source
FIU-IND PMLA VASP notification S.O. 1072(E), 7 March 2023: fiuindia.gov.in — PMLA VDA notification. CBDT Circular 13/2022 (§194S exchange TDS): CBDT Circular 13/2022.
MintByte is a SEBI-registered investment adviser (ARN-314872, APMI APRN-01658) offering services in mutual funds and NRI/GIFT City wealth management. MintByte does not advise on, recommend, or facilitate transactions in Virtual Digital Assets (VDAs) including cryptocurrencies. This content is factual and informational only, describing compliance and regulatory requirements under Indian law. It is not investment advice. Past performance is not indicative of future returns. Read all scheme-related documents carefully.