India Enforces Stricter Crypto User Verification Rules
India’s Financial Intelligence Unit (FIU) has unveiled comprehensive compliance regulations for cryptocurrency platforms, intensifying identity verification requirements for users nationwide. These measures aim to boost transparency, deter financial crime, and align the crypto industry’s policies with global standards.
Key Features of the New KYC Framework
The strengthened guidelines mandate cryptocurrency exchanges to implement live selfie verification and collect geographic data for user registration. Unlike traditional methods that relied on static document uploads, the live selfie system requires dynamic actions like blinking or turning one’s head. These steps help identify real users and reduce the risks of deepfake or static image fraud.
Additionally, platforms are now required to gather extensive personal details at onboarding, such as:
- Latitude and longitude coordinates
- Timestamped IP address
- Verification of both email addresses and mobile numbers using OTP (One-Time Password)
Bank Verification: To ensure the bank account ownership of users, exchanges use the penny-drop method—a refundable ₹1 transaction sent to the specified account.
Additional Documentation Requirements
New rules stipulate that users must provide their PAN (Permanent Account Number) and a secondary ID, such as a passport, Aadhaar card, or voter ID. Apart from these initial document checks, individuals flagged as high-risk will face further scrutiny, with their information updated on a semi-annual, rather than annual, basis. High-risk categories include:
- Individuals linked to tax-haven countries
- Entities on the FATF (Financial Action Task Force) grey or blacklist
- Politically Exposed Persons (PEPs)
Enhanced Monitoring of Anonymity Tools
The FIU has also imposed strict measures against using anonymity-enhancing tools like mixers or tumblers, which obscure transaction trails. Additionally, Initial Coin Offerings (ICOs) and Token Offerings (ITOs) are discouraged, as they are perceived to present complex risks linked to money laundering and terrorism financing.
The Economic Impact: High Compliance Costs and Taxation
India’s crypto exchanges have raised concerns over the increasing costs of compliance procedures. Adding further pressure is the nation’s rigid crypto taxation policy:
- A 30% tax on profits
- A 1% tax deducted at source (TDS) per transaction
Reports have highlighted that this strict framework has discouraged domestic trading activity. An estimated ₹4.87 lakh crore ($54.1 billion) in trading volume was reported on offshore exchanges between October 2024 and October 2025—a sharp increase of 85% year over year.
A Crypto Industry at a Crossroads
While the FIU’s new regulations bring much-needed transparency, they also challenge the growth of India’s domestic cryptocurrency sector. With rising compliance efforts and the exodus of local users and exchanges to offshore platforms, the industry is facing a critical need for a balance between oversight and user retention.
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Conclusion
India’s updated KYC and compliance framework serves as both a safeguard and a challenge for the evolving crypto economy. While these measures protect against fraud and criminal activity, industry participants continue to urge for a revised approach to tax policies and user engagement strategies to retain domestic trading activity.
