Rule 241 — Definitions for purposes of rules 242, 243 and 244. Made under s.2 of the Income-tax Act, 2025.
Rule 241 gives effect to Section 2 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.
The rule is a definition rule for rules 242, 243 and 244, the crypto-asset reporting rules. It has eighteen clauses.
Clauses (1) to (4) set the frame. "Anti Money Laundering or Know Your Customer Procedures" means the customer due diligence procedures of a reporting crypto-asset service provider under the Prevention of Money-Laundering Act, 2002. "Branch" means a unit, business or office treated as a branch under the regulatory regime of a country or territory, or otherwise regulated under its laws as separate from other offices, units or branches, and all units, businesses or offices in a single country or territory are treated as a single branch. "Entity" means a legal person or a legal arrangement, such as a company or partnership firm or trust or foundation.
Clauses (5) and (6) define "excluded person" and the financial vocabulary behind it. An excluded person is an entity whose stock is regularly traded on one or more established securities markets, a related entity of such an entity, a Governmental entity, an international organisation, a Central Bank, or a financial institution other than an investment entity described in clause (6)(d)(ii). Clause (6) then defines financial institution as a custodial institution, depository institution, investment entity or specified insurance company, and defines each. A custodial institution holds financial assets for the account of others as a substantial portion of its business, where gross income attributable to holding financial assets and related financial services equals or exceeds 20% of its gross income over the shorter of the three-year period ending on the 31st December, or the final day of a non-calendar accounting period, prior to the year of determination, or the period of its existence. A depository institution accepts deposits in the ordinary course of a banking or similar business, or holds specified electronic money products or Central Bank Digital Currencies for customers. An investment entity is one that primarily conducts as a business, for or on behalf of a customer, trading in money market instruments, foreign exchange, exchange, interest rate and index instruments, transferable securities or commodity futures, or individual and collective portfolio management, or otherwise investing, administering or managing financial assets, money or relevant crypto-assets for others, or whose gross income is primarily attributable to investing, reinvesting or trading in financial assets or relevant crypto-assets where it is managed by another such institution; "primarily" here means gross income from those activities equalling or exceeding 50% over the same shorter-of periods. Clause (6) also defines specified insurance company, governmental entity with its integral parts and controlled entities, international organisation, Central Bank, financial asset, equity interest, insurance contract, annuity contract, cash value insurance contract and cash value, the last with five carve-outs.
Clauses (7) to (10) deal with jurisdictions and assets. A "partner jurisdiction" is a country or territory outside India that has put in place equivalent legal requirements and is specified by the Central Government by notification. A "related entity" is one that controls the other or is under common control, control including direct or indirect ownership of more than 50% of the vote and value. A "relevant crypto-asset" is any crypto-asset that is not a Central Bank Digital Currency, or is not a specified electronic money product, or for which the reporting crypto-asset service provider has adequately determined that it cannot be used for payment or investment purposes; clause (10) carries the meaning of crypto-asset from section 2(111)(d) and defines digital representation of value, Central Bank Digital Currency and specified electronic money product, the last with five cumulative attributes and an exclusion for a product created solely to facilitate a transfer of funds, a product not being so created if funds are held longer than sixty days after the instructions or after receipt.
Clauses (11) and (12) define "relevant transaction" as any exchange transaction and any transfer of relevant crypto-assets, and then define exchange transaction, reportable retail payment transaction as a transfer of relevant crypto-assets in consideration of goods or services for a value exceeding fifty thousand usd, transfer, and fiat currency.
Clauses (13) and (14) define "reporting crypto-asset service provider" as any individual or entity that, as a business, provides a service for effecting exchange transactions for or on behalf of customers, including by acting as a counterparty or intermediary or by making available a trading platform, and then explain what a service effecting exchange transactions includes, that "as a business" excludes those acting on an infrequent basis for non-commercial reasons, that counterparty or intermediary includes dealers, operators of crypto-asset Automated Teller Machines, exchanges acting as market makers, brokers and subscribers, and that a trading platform includes any software program or application allowing users to effect exchange transactions.
Clauses (15) and (16) define "reportable user" as a crypto-asset user that is a reportable person, and then define crypto-asset user, individual and entity crypto-asset users, pre-existing individual and entity crypto-asset users as those having established a relationship with the provider as of the 31st December, 2025, reportable person, controlling persons, and "active entity" by six alternative criteria, including the passive income and passive asset test of less than 50% each, the twenty-four month limit for a start-up entity with no operating history, and the five-year condition for an entity liquidating or reorganising; passive income is then listed, and "substantially all" is fixed at 80% or more.
Clauses (17) and (18) define "telegraphic transfer buying rate" as the rate adopted by the State Bank of India for buying a fiat currency made available through a telegraphic transfer, having regard to the Reserve Bank of India guidelines, and "tin" as the Taxpayer Identification Number, or its functional equivalent, assigned to the crypto-asset user in the country or territory of his tax residence.
Rules 242, 243 and 244 impose due diligence and reporting duties on crypto-asset intermediaries, and every one of those duties turns on who is a provider, who is a reportable user, and what is a relevant crypto-asset. Rather than repeat that vocabulary three times, this rule carries it once. The definitions are also the point at which the Indian rules are tied to international practice, several of them being expressly directed to be read consistently with the Financial Action Task Force Recommendations as updated in June 2019.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Gross income test for a custodial institution | 20% or more of the gross income of the entity | Gross income attributable to holding financial assets and related financial services, over the shorter of the three-year period ending on the 31st December (or the final day of a non-calendar year accounting period) prior to the year of determination, or the period of the entity's existence | Rule 241(6)(b) |
| Gross income test for treating an entity as primarily conducting investment activities | 50% or more of the gross income of the entity | Attributable to the relevant activities, over the shorter of the three-year period ending on the 31st December (or the final day of a non-calendar year accounting period) of the year preceding the year of determination, or the period of the entity's existence | Rule 241(6)(e)(i) |
| Control threshold for a related entity | More than 50% of the vote and value in an entity | Direct or indirect ownership; control may also arise where the two entities are under common control | Rule 241(8) |
| Value above which a transfer for goods or services is a reportable retail payment transaction | Exceeding fifty thousand usd | Transfer of relevant crypto-assets in consideration of goods or services | Rule 241(12)(b) |
| Holding period that stops a product being treated as created solely to facilitate a transfer of funds | Longer than sixty days | Funds held after receipt of instructions to facilitate the transfer, or, where no instructions are received, after receipt of the funds, in the ordinary course of business of the transferring entity | Rule 241(10)(e) |
| Cut-off date for a pre-existing individual or entity crypto-asset user | As of the 31st December, 2025 | The user has established a relationship with the reporting crypto-asset service provider by that date | Rule 241(16)(d) and (f) |
| Passive income and passive asset test for an active entity | Less than 50% of gross income and less than 50% of assets | For the preceding calendar year or preceding non-calendar accounting period; assets that produce or are held for the production of passive income | Rule 241(16)(l)(i) |
| Period for which a non-operating entity may be an active entity | Twenty-four months from the date of the initial organisation of the entity | Entity not yet operating a business and with no prior operating history, investing capital with intent to operate a business other than that of a financial institution | Rule 241(16)(l)(iii) |
| Look-back for an entity liquidating or reorganising | Not a financial institution in the past five years | Entity in the process of liquidating its assets or reorganising with intent to continue or recommence operations in a business other than that of a financial institution | Rule 241(16)(l)(iv) |
| Meaning of "substantially all" | 80% or more | Used in the holding company criterion for an active entity | Rule 241(16)(n) |
The definitions decide the scope of rules 242 to 244, and several of them cut in ways a summary hides. "As a business" in clause (14)(ii) takes out individuals and entities acting on an infrequent basis for non-commercial reasons, so occasional activity is not caught, while clause (14)(iii) sweeps in dealers trading on their own account, operators of crypto-asset Automated Teller Machines, market-making exchanges, brokers and subscribers. A customer acting as agent, custodian, nominee, signatory, investment advisor or intermediary for someone else is not the crypto-asset user under clause (16)(a)(ii); the person behind is. "Excluded person" is not a general exemption for regulated firms either: clause (5)(f) excludes a financial institution but expressly not an investment entity described in clause (6)(d)(ii), which is the managed-entity limb. The 31st December, 2025 date in clauses (16)(d) and (f) separates pre-existing users from new ones, which is what determines which due diligence route a provider must run. And note that the fifty thousand usd figure attaches to the retail payment definition, not to reporting generally.
A firm runs a platform on which customers exchange one crypto-asset for another and buy crypto-assets for rupees. Because it provides that service as a business, it is a reporting crypto-asset service provider under clause (13), and the platform is a trading platform under clause (14)(iv). A customer who opened an account with it in November 2025 is a pre-existing individual crypto-asset user under clause (16)(d), being a relationship established as of the 31st December, 2025, while one who joined in March 2026 is not. If that customer is tax resident abroad and is not an excluded person, he is a reportable person under clause (16)(g) and so a reportable user under clause (15).
A taxpayer does not meet this rule directly; it works through the onboarding questions, self-certifications and residence declarations a crypto-asset platform puts to its customers under rules 242 to 244, and through the report the platform then files.
"reporting crypto-asset service provider" means any individual or entity that, as a business, provides a service for effecting exchange transactions for or on behalf of customers, including by acting as a counterparty, or as an intermediary, to such exchange transactions, or by making available a trading platform
"reportable retail payment transaction" means a transfer of relevant crypto-assets in consideration of goods or services for a value exceeding fifty thousand USD
control includes direct or indirect ownership of more than 50% of the vote and value in an entity