India has begun operating a tighter control framework for virtual digital assets designed to reduce anonymity gaps that can enable money laundering and terror financing. FIU-IND has applied the Prevention of Money Laundering Act (PMLA) to crypto platforms, turning registration and bank-style controls into table stakes.
This matters at an operating level because it changes the cost and user experience profile of crypto in the country. For investors, product teams, and compliance officers, the framework increases onboarding friction, raises recurring compliance workload, and keeps crypto tax treatment structurally punitive.
Onboarding and KYC are now engineered like financial-institution controls
The onboarding flow is being pulled closer to a “high-assurance identity” standard. Platforms are expected to run live biometric onboarding with liveness checks, capture geo-tagging and IP/device identifiers, and log verification artifacts such as transaction hashes. The same process also requires PAN plus a secondary government ID, OTP confirmation for mobile and email, and penny-drop bank verification to confirm account ownership.
Ongoing KYC is not “set and forget” under this posture. Exchanges must refresh KYC annually for ordinary users and every six months for accounts deemed high risk, including PEPs and entities linked to flagged jurisdictions. Alongside that cadence, the framework calls for annual risk assessments, monthly suspicious transaction reports (STRs) to FIU-IND, and retention of customer and transaction records for at least five years.
The rule set also tightens what platforms can support and how accountability is assigned internally. Initial Coin Offerings are barred and anonymity-enhancing tools such as tumblers and mixers are explicitly prohibited, while exchanges must also complete CERT-IN-accredited cybersecurity audits and appoint a director responsible for AML and counter-terror-financing compliance. The same package aligns with the FATF travel rule by requiring VASPs to collect and transmit originator and beneficiary data for virtual asset transfers.
Enforcement and tax drag reshape platform economics
Regulators are also using enforcement to drive compliance and reduce offshore leakage. FIU-IND has classified crypto platforms as “reporting entities” under the PMLA and has targeted 25 offshore exchanges for non-registration, including BingX, LBank, CoinW and Paxful. The pressure toolset described includes service blocking and formal notices intended to force registration and controls.
Tax policy remains a heavy headwind and compounds the product friction created by stricter onboarding. Profits from VDA transfers are taxed at a flat 30% under Section 115BBH and a 1% TDS applies to VDA transfers under Section 194S, with no ability to offset or carry forward VDA losses. That combination raises effective tax burden and makes active trading more expensive to operate and to justify.
The near-term market impact is a re-pricing of operating leverage across platforms. Higher compliance costs are likely to disadvantage smaller venues and accelerate consolidation, while enforcement has already pushed major exchanges—such as Binance and Coinbase—to re-verify users and register with FIU-IND. Net-net, the trade-off is clearer: more traceability and a cleaner regulatory footprint, in exchange for higher friction, higher fixed costs, and persistent tax drag that can influence liquidity and product breadth.