Rule 242: Which crypto-asset service providers must report in India under section 509
Section 509 of the Income-tax Act, 2025 requires a prescribed reporting entity to furnish information on transactions of crypto-assets. Rule 242 decides which reporting crypto-asset service providers must carry out the reporting requirements in Rule 243 and the due diligence requirements in Rule 244 in India. It lists the connecting factors with India, covers relevant transactions through an Indian branch, and lists the cases where the provider need not complete those requirements in India because they are completed in a partner jurisdiction. The terms used are defined in Rule 241.
Official notified Income-tax Rules, 2026Need advice on Rule 242?
This article is for general information. Read the official Rules and applicable Act amendments, including the Taxation and Other Laws (Amendment) Act, 2026. If you need professional advice for your situation, contact Bizeneed.
On this page
Bare law
Rule 242 - Obligation for reporting transaction of crypto-asset under section 509
(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 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.
(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 sub-rule (1)(b) to (e), 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 sub-rule (1)(d) and (e), 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 sub-rule (1)(e), 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; or (b) where it is an individual, pursuant to sub-rule (1)(e), 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 sub-rule (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.
Rule breakdown
Nexus with India: Rule 242(1)
A reporting crypto-asset service provider is subject to Rule 243 and Rule 244 if it is: (a) an entity or individual resident for tax purposes in India; (b) an entity incorporated or organised under the laws of India; (c) an entity that has legal personality in India or has an obligation to file a return of income under section 263; (d) an entity managed from India; or (e) an entity or individual with a regular place of business in India.
Indian branches: Rule 242(2)
A reporting crypto-asset service provider is also subject to Rule 243 and Rule 244 for relevant transactions effected through a branch based in India.
When India reporting is not required: Rule 242(3)
Clauses (a) and (b) give relief where the requirements are completed in a partner jurisdiction on a stronger connecting factor. For example, an entity covered only by clauses (b) to (e) of sub-rule (1) is excused if it completes the requirements in a partner jurisdiction where it is resident for tax purposes.
Clause (c) gives relief 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 on a substantially similar nexus.
Clause (d) covers relevant transactions effected through a branch in a partner jurisdiction, where that branch completes the requirements there.
Where to find the definitions
Rule 241 defines terms for Rules 242, 243 and 244, including the terms used in Rule 242. Read Rule 242 with those definitions before deciding whether a provider is covered.
Key takeaways
Five connecting factors
Tax residence, incorporation, legal personality or return-filing duty, management, or a regular place of business in India.
Branches count
Relevant transactions through an Indian branch bring Rules 243 and 244 into play.
Relief for partner jurisdictions
Rule 242(3) excuses India reporting where the requirements are completed in a partner jurisdiction on the grounds it lists.
Practical checklist
- Map every connecting factor in Rule 242(1) for each group entity.
- List the relevant transactions effected through any Indian branch.
- Keep evidence of reporting completed in a partner jurisdiction if you rely on Rule 242(3).
Avoid
- Do not assume a foreign incorporation alone takes a provider outside Rule 242; management or a regular place of business in India may still apply.
- Do not rely on Rule 242(3)(c) without lodging the notification with India in the specified format.
FAQs
What does Rule 242 decide?
Whether a reporting crypto-asset service provider must complete the reporting requirements in Rule 243 and the due diligence requirements in Rule 244 in India.
Is an Indian branch of a foreign provider covered?
Rule 242(2) applies Rules 243 and 244 to relevant transactions effected through a branch based in India.
Can a provider avoid duplicate reporting?
Rule 242(3) lists the cases. One is where it 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 on a substantially similar nexus.
Where are "partner jurisdiction" and the other terms defined?
In Rule 241, which gives definitions for the purposes of Rules 242, 243 and 244.
Glossary
- Reporting crypto-asset service provider
- A term defined in Rule 241 for Rules 242 to 244.
- Partner jurisdiction
- A term defined in Rule 241 for Rules 242 to 244.
- Crypto-asset
- Section 509(6) gives it the meaning in section 2(111)(d) of the Act.