Rule 242 of the Draft Income-tax Rules, 2026 prescribes the obligation for reporting crypto-asset transactions under section 509 of the Act and determines when crypto-asset service providers must comply with reporting requirements under Rule 243 and due diligence requirements under Rule 244. The rule applies to reporting crypto-asset service providers that have a nexus with India, including entities or individuals who are tax residents in India, entities incorporated or organised under Indian law, entities that have legal personality in India or are required to file a return of income under section 263, entities managed from India, or entities or individuals having a regular place of business in India. In addition, reporting obligations apply to relevant crypto-asset transactions conducted through a branch located in India. However, the rule provides certain exemptions from completing reporting and due diligence requirements in India where such obligations are already fulfilled in a partner jurisdiction. Entities may be exempt if they complete reporting in a partner jurisdiction due to their tax residency, incorporation, legal personality, obligation to file tax returns, or management in that jurisdiction. Similarly, individuals having a regular place of business in India may be exempt if they are tax residents of a partner jurisdiction and have fulfilled equivalent reporting obligations there. Exemption is also available where the service provider submits a notification to India confirming that it has complied with similar reporting requirements in a partner jurisdiction under a substantially similar nexus. Further, where relevant transactions are carried out through a branch located in a partner jurisdiction, the reporting requirements may be fulfilled by that branch in the respective jurisdiction. Overall, the rule establishes a framework to determine when crypto-asset service providers connected with India must report transactions and when compliance in another jurisdiction is sufficient.
Extract of Rule No. 242 of Draft Income-tax Rules, 2026
Rule 242
Obligation for reporting under section 509 of the Act.
(1) A reporting crypto-asset service provider is subject to the reporting requirements under rule 243 and due diligence requirements under rule 244, if it is––
(a) an entity or individual resident for tax purposes in India; or
(b) an entity that is incorporated or organised under the laws of India; or
(c) an entity that either has legal personality in India or has an obligation to file return of income under section 263; or
(d) an entity managed from India; or
(e) an entity or individual that has a regular place of business in India.
(2) A reporting crypto-asset service provider is subject to the reporting requirements under rule 243 and due diligence requirements under rule 244 with respect to relevant transactions effected through a branch based in India.
(3) A reporting crypto-asset service provider is not required to complete the reporting requirements under rule 243 and due diligence requirements under rule 244 in India,––
(a) where it is an entity,––
(i) pursuant to clauses (b), (c), (d) and (e) of sub-rule (1), if such requirements are completed by such reporting crypto-asset service provider in a partner jurisdiction by virtue of it being resident for tax purposes in such partner jurisdiction;
(ii) pursuant to clauses (d) and (e) of sub-rules (1), if such requirements are completed by such reporting crypto-asset service provider in a partner jurisdiction by virtue of it being––
(A) an entity that is incorporated or organised under the laws of such partner jurisdiction; or
(B) an entity that either has legal personality in the partner jurisdiction or has an obligation to file tax returns or tax information returns to the tax authorities in partner jurisdiction with respect to the income of such entity; or
(iii) pursuant to clause (e) of sub-rule (1), if such requirements are completed by such reporting crypto-asset service provider in a partner jurisdiction by virtue of it being managed from such partner jurisdiction;
(b) where it is an individual, pursuant to clause (e) of sub-rule (1), if such requirements are completed by such reporting crypto-asset service provider in a partner jurisdiction by virtue of it being resident for tax purposes in such partner jurisdiction; or
(c) pursuant to clause (a) or clause (b) or clause (c) or clause (d) or clause (e) of subrule (1), if it has lodged a notification with India in a format specified by India confirming that such requirements are completed by such reporting crypto-asset service provider under the rules of a partner jurisdiction pursuant a substantially similar nexus that it is subject to in India; or
(d) with respect to relevant transactions that are effected through a branch in a partner jurisdiction, if such requirements are completed by such branch in such partner jurisdiction.
