Rule 242 — Obligation for reporting transaction of crypto-asset under section 509. Made under s.509, s.263 of the Income-tax Act, 2025.
Rule 242 gives effect to Section 509 and Section 263 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.
Sub-rule (1) fixes the nexus that brings a reporting crypto-asset service provider within the Indian reporting net. It is subject to the reporting requirements under rule 243 and the due diligence requirements under rule 244 if it is an entity or individual resident for tax purposes in India; an entity incorporated or organised under the laws of India; an entity that either has legal personality in India or has an obligation to file a return of income under section 263; an entity managed from India; or an entity or individual that has a regular place of business in India. Sub-rule (2) adds a branch nexus: those requirements apply with respect to relevant transactions effected through a branch based in India.
Sub-rule (3) then relieves against double reporting where another jurisdiction has already done the work. Where the provider is an entity, the requirements need not be completed in India if they are completed in a partner jurisdiction — for the nexus in clauses (b) to (e), by virtue of tax residence there; for the nexus in clauses (d) and (e), by virtue of being incorporated or organised under that jurisdiction's laws, or having legal personality there or an obligation to file tax returns or tax information returns there in respect of its income; and for the nexus in clause (e), by virtue of being managed from that partner jurisdiction. Where the provider is an individual with the clause (e) nexus, relief follows from completion in a partner jurisdiction by virtue of tax residence there. Relief is also available for any of the five nexuses where the provider has lodged a notification with India, in a format specified by India, confirming that the requirements are completed under the rules of a partner jurisdiction pursuant to a substantially similar nexus that it is subject to in India. Finally, the requirements need not be completed in India with respect to relevant transactions effected through a branch in a partner jurisdiction, if completed by that branch there.
Section 509 imposes an obligation to report transactions in crypto-assets, but a crypto-asset service provider may be connected to several countries at once — incorporated in one, managed from another, with a place of business in a third — so the section does not by itself say when India's obligation attaches or how to avoid the same transactions being reported everywhere. Rule 242 answers both. Sub-rules (1) and (2) list five nexus tests plus the branch test, and sub-rule (3) switches the obligation off, nexus by nexus, where a partner jurisdiction is already collecting the same information.
The nexus tests are alternatives, so one is enough — a provider incorporated abroad and not resident here is still caught if it is managed from India or has a regular place of business here, and a branch in India brings the transactions effected through it within the rules regardless of where the head office sits. The relief in sub-rule (3) is not a general exemption for foreign providers; it is calibrated, and which relief is available depends on which nexus brought the provider in. Tax residence in a partner jurisdiction relieves the nexuses in clauses (b) to (e) but is not offered for clause (a), residence for tax purposes in India. Relief also depends on the requirements actually being completed in the partner jurisdiction, not merely on the provider being registered there, and the general route in clause (3)(c) additionally requires a notification lodged with India in a format specified by India, confirming completion under a substantially similar nexus. What is to be reported and the diligence to be done are not in this rule at all — they are in rules 243 and 244.
A crypto-asset service provider is incorporated abroad, is not resident in India for tax purposes, but is managed from India. It is caught by rule 242(1)(d), so the reporting under rule 243 and the due diligence under rule 244 apply. If it completes those same requirements in a partner jurisdiction by virtue of being resident for tax purposes there, rule 242(3)(a)(i) relieves it in India. If it relies instead on being incorporated in that partner jurisdiction, rule 242(3)(a)(ii)(A) covers the clause (d) nexus, and it may also lodge the notification under rule 242(3)(c) confirming completion under a substantially similar nexus.
A crypto-asset investor never meets this rule; the exchange or service provider does, when deciding whether it must run the rule 244 due diligence and file the rule 243 report in India, and when lodging the notification under sub-rule (3)(c).
A reporting crypto-asset service provider shall be 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.
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