India's Financial Intelligence Unit (FIU) has introduced stricter rules for crypto platforms. As a result, identity verification requirements for users across the country have been significantly tightened.
According to the new rules, regulated crypto exchanges must verify users with live selfie authentication and capture geographic location during the registration process.
India’s stricter verification standards focus on deepfakes and static images
The latest FIU rules go beyond simply checking documents. Exchanges must now use live selfie verification, requiring users to make dynamic movements such as blinking or turning their head. This aims to prevent static photos or deepfakes from bypassing identity checks.
As noted by the Times of India, platforms must collect additional data during account creation, including latitude and longitude, date, time, and IP address.
"The crypto exchange must also ensure that the customer whose data is provided during account creation is indeed the same person using the application and carrying out the process themselves," according to the guidelines.
The rules also tighten documentation requirements. In addition to a Permanent Account Number (PAN), users must provide a second form of identification. This may include: a passport, Aadhaar card (a 12-digit unique identity number issued by the Indian government), or a voter ID card.
In addition, email addresses and mobile numbers are verified using one-time password (OTP) authentication for extra security. Using the 'penny-drop' method—where a small bank transfer of 1 rupee is made—verifies that the account truly belongs to the user.
Users classified as high risk will, under the new FIU rules, face more frequent and stricter controls. This includes individuals with ties to tax havens, countries on the Financial Action Task Force (FATF) grey or black lists, politically exposed persons (PEPs), or non-profit organizations.
These users must update their KYC information every six months, while regular users do so once a year. Exchanges must also conduct additional due diligence.
Beyond the registration process, the FIU also enforces strict measures against tools that enhance anonymity (such as mixers/tumblers and similar products), which are used to hide transactions. Additionally, the FIU strongly advises against Initial Coin Offerings (ICOs) and Initial Token Offerings (ITOs).
According to the regulator, this type of activity constitutes "large and complex" risks in the areas of money laundering and terrorism financing. They are viewed as initiatives without clear economic justification.
A strict tax regime drives users toward offshore platforms
In addition to strict oversight, India imposes a 30% tax on crypto gains. An additional 1% tax is withheld at source (TDS) on every transaction. Analysts say this tax structure "works against" domestic trading, discouraging local activity and pushing users toward foreign trading platforms.
"Summarized in one sentence: the tax policy, which is not uniformly applied across the sector, has caused a significant shift of users and liquidity toward foreign platforms," according to a report.
The report indicates that Indian users generated approximately ₹4.87.799 crore in trading volume on foreign exchanges between October 2024 and October 2025. This amounts to roughly $54.1 billion.
For comparison, Indian users' foreign trading volume the previous year was ₹2.63.406 crore ($29.2 billion). This represents an 85% increase compared to the previous year.
According to the report, 91.5% of all Indian crypto trading now takes place on foreign platforms. Only 8.5% of trading remains on registered Indian exchanges.
"The uncollected TDS since October 2024 amounts to ₹4.877 crore. Since the introduction of the policy, this figure has risen to ₹11.000 crore," analysts emphasized. "When discussing capital flight and lost tax revenue, we estimate the government's loss since the implementation of the 30% tax rate to be approximately ₹36.000 crore."
The increased compliance demands and heavy tax burden pose a challenge for India's crypto sector. The new KYC rules aim for transparency and crime prevention, but high taxes drive users out of the country and reduce government revenue. Achieving a proper balance between oversight and domestic engagement remains uncertain. The crypto industry stands at a critical turning point.