What You Need to Know About India’s New Crypto User Verification Rules

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.

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.

As noted by the Times of India, platforms must collect details at sign-up, including latitude, longitude, date, timestamp, and IP address.

“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.

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.

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.

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.

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.

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).

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.

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.

“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.

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.

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.

The report noted that 91.5% of Indian crypto trading now occurs offshore, while only 8.5% remains on registered domestic exchanges.

“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.”

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.

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