For India, this consensus marks a crucial turning point. More than 50 jurisdictions have committed to implementing CARF by 2027. However, New Delhi’s inclination to adapt to this timeline has been met with silent resistance: integrating crypto assets into formal tax reporting risks lending legitimacy to a volatile and speculative asset class.
This fear misinterprets the nature of regulation. The decision to implement CARF is not an act of approval, but of institutional self-preservation. Supervision is not legitimation; it is the extension of the state’s supervisory reach into a domain that has operated outside its purview for too long.
To understand why CARF is necessary, one must first recognize the limits of the existing architecture. The Common Reporting Standard (CRS), designed in 2014, presupposes a financial ecosystem anchored in identifiable intermediaries holding accounts on behalf of residents of reportable jurisdictions. This model works well for a bank account in Zurich or a trust in the British Virgin Islands, not for a Ledger Nano X sitting in a drawer in Mumbai.
CRS depends on guardianship relationships. Crypto assets, on the other hand, often move through decentralized systems where no central custodian exists. Under the current regime, a transfer from a custodial exchange to a self-hosted wallet often marks the end of the reporting process. From the perspective of the tax authorities, the asset actually disappears. Monitoring cryptocurrencies through CRS is akin to monitoring an empty building as economic activity migrates elsewhere.
CARF is designed to address this structural mismatch. Unlike CRS, which focuses on account balances, CARF is event-driven. It requires Reporting Crypto-Asset Service Providers (RCASPs) to capture and exchange transaction-level data in four categories: exchanges between crypto assets and fiat currencies; exchanges between crypto assets; transfers of crypto assets; and crypto-based retail payment transactions. The shift is subtle but consistent: the object of regulation is no longer the bill, but the transaction.
CARF also reconfigures the nexus for reporting. Rather than relying solely on the physical presence or location of management, reporting obligations are anchored in the user’s jurisdiction and the provision of services to residents of that jurisdiction. An exchange serving Indian users may therefore fall within India’s reporting boundaries, regardless of where its servers or headquarters are located. This architecture enables automatic, standardized information exchange between tax authorities, reducing reliance on slow and fragmented bilateral requests that are not suitable for fast-paced digital markets.
The absence of CARF has consequences that extend far beyond tax administration. It also weakens India’s anti-money laundering architecture. The Financial Intelligence Unit-India has taken significant steps by requiring providers of virtual digital assets to register as reporting entities under the Prevention of Money Laundering Act. But without international interoperability, these measures remain domestically limited in a borderless market.
Illegal actors exploit this discrepancy and move value across chains, platforms and jurisdictions to avoid siled surveillance. While blockchain analytics can provide partial insights, domestic registration alone cannot reliably reconstruct complex cross-border transaction paths. CARF does not eliminate opacity, but it does materially reduce it by standardizing data collection and sharing across jurisdictions.
Unhosted wallets
One of the key features of CARF, especially from India’s perspective, is its handling of unhosted wallets. Managed directly by individuals, without intermediaries, these wallets act in many ways as the money of the digital economy. Under existing frameworks, high-value peer-to-peer transfers involving such wallets can occur with little or no reporting. CARF reduces this blind spot. It requires RCASPs, when facilitating transfers to or from unhosted wallets, to collect and report counterparty identifying information to the extent reasonably available. Perfect attribution is not guaranteed, but the increase in visibility is significant.
This distinction between regulation and approval is not new. The state routinely regulates activities it does not morally endorse: from tobacco and alcohol to gambling and complex financial derivatives, not to validate them but to impose discipline, safeguard revenues and limit harm. Major jurisdictions have applied the same unsentimental logic to crypto assets. For example, the US has mandated transaction-level reporting for digital assets, without expressing any position on its underlying benefits. Regulation is seen here as an instrument of visibility, not validation.
India, meanwhile, relies heavily on domestic tax instruments. These measures are effective in taxing outcomes, but provide limited insight into the transactional mechanisms. It taxes profits, but misses the mark. The 1 percent tax deducted at source on the transfer of virtual digital assets, applicable above a certain threshold and going up to 20 percent in the absence of a PAN, was introduced precisely to create a transaction trail where none existed. Although the regime is crude, it fulfills a crucial signaling and reception function in an otherwise opaque ecosystem.
Maintain domestic instrument
Some argue that the implementation of CARF should logically lead to the abolition of the 1 percent TDS, as international reporting would make domestic tracking redundant. Although economically attractive, this argument is premature. It calls for the state to replace a proven domestic mechanism with an international framework whose real-world capture rate, particularly for high-frequency, intra-jurisdictional and peer-to-peer transfers, remains unproven. In order to dismantle the TDS, there must be credible evidence that CARF provides equivalent or superior visibility. Until such equivalence is empirically demonstrated, retaining the domestic instrument is a matter of caution, not inertia.
In the absence of CARF, Indian law mandates reporting but lacks mutual information pipelines. Without CARF’s nexus rules, the tax authorities only see what the taxpayer wants to declare. A trader in Mumbai can use a Dubai-based exchange to move value to a wallet in the Cayman Islands. Without automatic exchange, this transaction is effectively invisible.
The choice for the state is not between regulating cryptocurrencies and rejecting them. It’s between visibility and blindness. CARF is not a concession to crypto assets; it is a reclamation of the state’s ability to see. In a financial system where value moves at the speed of code, the absence of reporting is not neutrality; it is abdication. Looking at crypto doesn’t legitimize it. It is the minimum requirement for running a modern financial system.
The writers are Assistant Professor and former Distinguished Professor at National Law University Delhi respectively
Published on January 8, 2026
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