India Introduces Stricter KYC Norms for Crypto Exchanges

India has introduced more stringent verification requirements for cryptocurrency exchanges onboarding new users. The Financial Intelligence Unit (FIU), the country's primary agency for anti-money laundering (AML) policy, issued new guidelines aimed at enhancing security and compliance.

Key New Verification Measures The updated rules mandate the following actions from regulated crypto exchanges:

Live Selfie Verification: Users must submit a live selfie, verified by software that tracks eye and head movements to prevent the use of AI-generated deepfakes to bypass identity checks.

Geographic and Digital Location Capture: Platforms must collect the user's geolocation data and IP address at the moment of account creation, along with a precise timestamp.

Bank Account Authentication: To satisfy AML requirements, exchanges must verify a user's linked bank account by sending and confirming a small test transaction.

Additional Documentation: Users must now provide extra government-issued photo identification and verify both their email address and mobile phone number to create an account.

Context and Regulatory Stance These measures reflect India's broader regulatory approach to cryptocurrencies. Officials from the Income Tax Department (ITD) recently told lawmakers that cryptocurrencies and decentralized finance platforms can complicate tax enforcement due to their cross-border functionality and anonymity features.

India's crypto tax framework is notably strict:

• Gains from cryptocurrency sales are taxed at a flat rate of 30%.
• Traders cannot use losses from one transaction to offset gains from another, a practice known as tax-loss harvesting.

The regulatory tightening comes as India, with its population of over 1.4 billion, represents one of the world's largest potential markets for digital asset adoption. Bringing more users into a regulated environment could pave the way for significant new investment in the crypto sector.