Step-by-Step Guide to Register as a VDASP with FIU-IND
India's regulatory framework designates Virtual Digital Asset Service Providers (VDASPs) as "Reporting Entities" under the Prevention of Money Laundering Act, 2002 (PMLA). Registration with the Financial Intelligence Unit - India (FIU-IND) is mandatory for all entities, domestic or offshore, servicing Indian residents. Non-compliance attracts severe penalties and operational restrictions.
1. Determine Applicability and Scope
Registration is mandatory for any entity (onshore or offshore) providing the following VDA services for or on behalf of another person:
- • Exchange: Between VDAs and fiat currencies, or between different forms of VDAs.
- • Transfer: Moving VDAs from one address/account to another.
- • Safekeeping/Administration: Custody or administration of VDAs or instruments enabling control (e.g., keys).
- • Financial Services: Participation in and provision of financial services related to a VDA issuance or sale.
2. Pre-Registration Compliance
The applicant must ensure the corporate structure and compliance framework are established before initiating the application via the FinGate portal.
| Requirement | Key Personnel/System | Compliance Standard |
|---|---|---|
| Key Personnel | Principal Officer (PO): Nodal point for FIU-IND communications. Preferably based in India and exclusively employed by the VDA SP. | Must be a senior, qualified, and experienced employee (minimum 3 years in AML). |
| Designated Director (DD): Senior-most official responsible for PMLA adherence and oversight. | Must be appointed by a Board Resolution. | |
| AML/CFT Framework | Internal Policies and Systems | Must be aligned with FIU-IND guidelines (PMLA/PMLR). Covers CDD/KYC, risk management, and employee training. |
| B2B Due Diligence | Agreements with other VDA SPs | Must submit copies of all B2B agreements and secure a "Fit and Proper" certificate from the registered VDA SP partner (e.g., PACT- Partner Accreditation for Compliance and Trust). |
3. FIU-IND Registration Process
The process is multi-stage and requires documentary submission followed by personnel verification.
A. Application Submission (FinGate Portal)
The entity registers on the FIU-IND FinGate portal and submits the required documents.
| Core Document Checklist | Purpose and Detail |
|---|---|
| Legal Existence | Certificate of Incorporation/Registration, PAN Card, and Bank Account details. |
| Financial/Tax Records | Audited Financial Statements (Last 3 years), GST Returns, and Income Tax Returns (including TDS forms related to VDA transactions). |
| Compliance Documents | Detailed AML/CFT Policy and Procedures, Internal Control Mechanisms, and a duly filled AML compliance questionnaire. |
| Enforcement Declaration | A Self-Declaration stating that no proceedings are pending with the Directorate of Enforcement (ED) or any other law enforcement agency against the applicant/directors. |
| Personnel Documents | Appointment letters, detailed profiles, and KYC of the Principal Officer and Designated Director. |
| Cybersecurity Audit | Certificate confirming compliance with IT Act requirements (often from a CERT-In empanelled auditor). |
B. Review and In-Person Meeting
- • Review Meeting: An in-person or virtual meeting with FIU-IND officials is scheduled only after the complete document dossier is furnished to the satisfaction of FIU-IND. Both the Designated Director and Principal Officer must attend.
- • System Demonstration: The applicant must be prepared to provide a live demonstration of their AML/CFT tools, including KYC, transaction monitoring, sanctions screening, and blockchain analysis systems.
4. Post-Registration and Reporting Obligations
Upon successful registration, the VDA SP becomes a Reporting Entity (RE) under the PMLA.
| Report Type | Reporting Threshold / Deadline |
|---|---|
| Suspicious Transaction Reports (STRs) | File within 7 working days of forming suspicion, regardless of transaction amount. |
| Cash Transaction Reports (CTRs) | Report cash transactions (single or linked) exceeding ₹10 lakh in a month. |
| Non-Profit Organization Transaction Reports (NTRs) | Report transactions involving NPOs that meet defined thresholds. |
| Other Reports | Cross Border Wire Transfer Reports (CBWTRs) may also be applicable. |
| Record-Keeping | Maintain all transaction and customer identity data for a minimum of 5 years from the date of the transaction or termination of the business relationship. |
5. Taxation Overview (Income Tax & GST)
VDA transactions in India are subject to a uniquely stringent tax regime under the Income Tax Act (IT Act) and the Goods and Services Tax (GST) framework.
Income Tax on VDA Gains (Section 115BBH)
- • Tax Rate: A flat 30% tax (plus applicable surcharge and cess) is levied on income arising from the transfer (sale, trade, or exchange) of any VDA.
- • Limited Deductions: No deduction for any expenditure or allowance is permitted, except for the cost of acquisition. Operational expenses (e.g., gas fees, brokerage) cannot be claimed.
- • Loss Treatment: Losses arising from the transfer of VDAs cannot be set off against any other income, nor can they be carried forward to subsequent years.
Tax Deducted at Source (TDS) (Section 194S)
- • Obligation: The buyer (or the VDA SP, if facilitating the transaction) is required to deduct tax at source. VDA SPs are responsible for deducting 1% TDS on the consideration paid for the transfer of a VDA.
- • Rate: 1% of the consideration value.
- • Applicability: Applies when the transfer value exceeds certain thresholds (₹50,000 for specified persons; ₹10,000 for others). This applies even to VDA-to-VDA exchanges.
Goods and Services Tax (GST)
- • GST Rate: 18% GST is applied to services provided by the VDA platform (the exchange, brokerage, or service fee/commission), but not on the value of the underlying VDA asset itself.
- • Applicability: Applies to both onshore and offshore VDA platforms servicing Indian users. Exchanges are required to register for GST and remit the tax collected on their service fees.
6. Consequences of Non-Compliance
Failure to register or comply with PMLA obligations is a serious violation.
- • Penalties: Monetary fines up to ₹1 lakh per violation.
- • Operational Risks: FIU-IND can direct relevant authorities (like MeitY) to block websites/applications of non-compliant entities (e.g., blocking of offshore exchanges).
- • Legal Action: The Director, FIU-IND, reserves the right to deny or cancel registration and initiate action under Section 13(2) of the PMLA.
Official Portal
- • Financial Intelligence Unit - India (FIU-IND):
FIU India Portal
Need Help with Your FIU-IND VDASP Registration?
Our team has extensive experience guiding virtual asset service providers through the FIU-IND registration process in India. From initial compliance preparation to full registration and ongoing reporting obligations, we provide comprehensive legal support every step of the way.
Schedule a ConsultationRelated Articles
Continue exploring our knowledge center
