Major Shift in Digital Financial Reporting and Crypto-Asset Monitoring: Amendments Introduced in Income Tax Rules

New Delhi: The Government of India has introduced major amendments to the Income-tax Rules, 1962, aiming to improve transparency in digital financial reporting and strengthen oversight of crypto-related transactions. The changes, notified by the Ministry of Finance’s Department of Revenue on March 5, 2026, revise Rules 114F, 114G, and 114H to address the growing role of digital assets in the financial ecosystem.

The updated framework expands definitions and reporting requirements related to central bank digital currencies (CBDCs), electronic money products, and crypto-assets. Officials say the move is intended to enhance regulatory clarity while improving monitoring of emerging financial technologies.

New Definitions for CBDC and Digital Money Products

Under the amended rules, Central Bank Digital Currency (CBDC) has been formally defined as a digital version of fiat currency issued by a central bank. The introduction of this definition supports India’s broader push toward a secure and regulated digital payments ecosystem.

The notification also introduces the term “specified electronic money product.” These are digital instruments that represent a single fiat currency in electronic form and are issued in exchange for funds intended for payment transactions. Such products must be redeemable at their face value and accepted as a payment method by entities other than the issuer.

However, the rules clarify that services designed purely for facilitating fund transfers will not fall under this category. Additionally, digital money products where funds remain unused for more than 60 days will be excluded from the specified electronic money classification.

Another new category introduced is “relevant crypto-asset.” This term applies to digital assets that are neither central bank digital currencies nor specified electronic money products, or those deemed unsuitable for payment or investment by reporting service providers. These assets will be covered under the reporting framework for regulatory oversight.

Expansion of the Financial Asset Reporting Framework

The amendments also broaden the scope of financial assets that must be reported. The updated definition now includes interests linked to crypto-assets such as futures contracts, forward contracts, and options contracts involving digital assets.

Financial institutions are now required to maintain comprehensive records for accounts, including self-certification documents, details of joint account holders, and information about controlling persons.

For joint accounts, institutions must preserve the identities and the number of all account holders. Additionally, even for accounts that are not classified as U.S. reportable accounts, institutions must document whether valid self-certification has been obtained from account holders.

The rules also require identification and role details of individuals who exercise control over financial accounts, ensuring greater transparency in ownership structures.

Updated Due Diligence and Compliance Procedures

The revised regulations introduce enhanced due diligence requirements for newly opened accounts during the reporting period. If self-certification from an account holder cannot be obtained promptly, institutions must temporarily apply procedures similar to those used for pre-existing accounts until proper certification is received and verified.

For accounts maintained up to December 31, 2025, information about controlling persons or equity interest holders must only be reported if such details are available in electronically searchable records maintained by the financial institution.

The government has also updated reporting rules for gross proceeds from the sale or redemption of financial assets, ensuring that the same transaction is not reported twice if it has already been captured under the crypto-asset reporting framework.

Aligning with Global Tax Transparency Standards

Experts say the amendments align India’s regulatory approach with international tax transparency initiatives, including frameworks designed for global financial information sharing.

As digital financial instruments continue to expand, authorities are increasingly relying on advanced technology and data-driven reporting systems to strengthen tax administration.

Officials believe the updated rules will help curb tax evasion, identify suspicious financial activity, and improve the exchange of financial information across borders. The reforms are also expected to help financial institutions adopt more structured compliance systems for managing digital asset transactions.