The recent 18th Plenary of the Global Forum on Transparency and Exchange of Information for Tax Purposes held in New Delhi highlighted a growing fault line in the international tax system. Finance has digitised far faster than the reporting frameworks meant to oversee it. At the centre of discussions was the Crypto-Asset Reporting Framework (CARF), an OECD-led attempt to restore tax visibility in an era of decentralised finance. For India, the debate is not about endorsing crypto-assets, but about avoiding regulatory blindness.
What Triggered the Debate at the Global Forum?
Delegates from over 120 jurisdictions acknowledged a shared challenge: existing tax transparency mechanisms are ill-equipped to track crypto-assets that move across borders without traditional intermediaries. Over 50 countries have committed to implementing CARF by 2027, signalling a multilateral consensus that crypto-assets can no longer remain outside automatic information exchange systems.
India’s hesitation stems from a concern that bringing crypto-assets into formal reporting may be seen as legitimising a volatile and speculative asset class. However, this conflates regulation with approval. Tax surveillance is not endorsement; it is institutional self-preservation.
Why Existing Tax Reporting Frameworks Fall Short
The current global standard, the Common Reporting Standard (CRS), was designed in 2014 for a financial system dominated by banks, custodians, and identifiable intermediaries. CRS works well for offshore accounts or trusts, but poorly for decentralised crypto systems.
Crypto-assets often move from custodial exchanges to self-hosted wallets, at which point the reporting trail ends. For tax authorities, the asset effectively disappears. Applying CRS to crypto is akin to regulating empty structures while economic activity migrates elsewhere.
How CARF Changes the Logic of Reporting
CARF addresses this structural mismatch by shifting from account-based to transaction-based reporting. Instead of focusing on balances, it mandates Reporting Crypto-Asset Service Providers (RCASPs) to capture transaction-level data across four categories:
- Crypto-to-fiat exchanges
- Crypto-to-crypto exchanges
- Transfers of crypto-assets
- Crypto-based retail payment transactions
This event-driven approach reflects how value actually moves in digital markets. CARF also redefines jurisdictional nexus: reporting obligations are linked to the user’s location, not merely the physical presence of the service provider. An offshore exchange servicing Indian residents can thus fall within India’s reporting perimeter.
Implications for Tax Enforcement and AML Oversight
The absence of CARF weakens not just tax administration but also anti-money laundering oversight. While the Financial Intelligence Unit–India has brought Virtual Digital Asset service providers under the Prevention of Money Laundering Act, domestic registration alone is insufficient in a borderless crypto economy.
Illicit actors exploit regulatory fragmentation, moving value across jurisdictions and blockchains to evade detection. CARF does not eliminate opacity, but it significantly reduces it by enabling standardised, automatic exchange of crypto-transaction data across tax authorities.
Why Unhosted Wallets Matter in the Indian Context
One of CARF’s most consequential provisions concerns unhosted wallets — self-controlled wallets that function like digital cash. Under current frameworks, high-value peer-to-peer transfers using such wallets can occur with minimal reporting.
CARF narrows this blind spot by requiring RCASPs to collect and report counterparty information for transfers involving unhosted wallets, to the extent reasonably available. While perfect attribution is impossible, the expansion of visibility is substantial and strategically important for tax and enforcement agencies.
Domestic Tax Tools and the Case for Retention
India has relied on domestic instruments such as the 1 per cent Tax Deducted at Source (TDS) on transfers of Virtual Digital Assets to create a transaction trail in an opaque ecosystem. Though blunt, the measure performs a signalling and capture function that international frameworks have yet to prove at scale.
Some argue that CARF’s adoption should automatically lead to the removal of TDS. This is premature. CARF’s real-world effectiveness — especially for high-frequency and peer-to-peer transactions — remains untested. Until it demonstrably offers equivalent or superior visibility, retaining domestic instruments is a matter of prudence, not policy inertia.
Regulation Is Visibility, Not Validation
States routinely regulate activities they do not morally endorse — from gambling to complex derivatives — to impose discipline, mitigate harm, and secure revenue. Crypto-assets are no different. Major jurisdictions, including the US, have adopted transaction-level reporting without endorsing crypto’s underlying value proposition.
For India, the choice is not between accepting or rejecting crypto. It is between visibility and blindness. Without CARF, the tax authority sees only what taxpayers choose to disclose. With it, the State regains a measure of sight in a financial system where value moves at the speed of code.
What to Note for Prelims?
- Crypto-Asset Reporting Framework (CARF) and its objectives.
- Difference between CRS and CARF.
- Role of OECD in global tax transparency.
What to Note for Mains?
- Analyse why existing tax transparency frameworks are inadequate for crypto-assets.
- Discuss how CARF strengthens tax and anti-money laundering oversight.
- Examine the argument that regulation of crypto-assets does not amount to legitimisation.
