SEBI has ordered registered market intermediaries to update KYC and tax-reporting systems to comply with the 2026 Income-tax Rules, focusing on AEOI frameworks, FATCA, and CRS standards to prevent tax evasion and ensure regulatory adherence.
SEBI Updates KYC and Tax Compliance Protocols
The Securities and Exchange Board of India (SEBI) on Wednesday directed registered market intermediaries to update their Know Your Customer (KYC) and tax-reporting systems in line with the revised income tax rules, aimed at ensuring compliance with international financial account reporting requirements. In a circular issued on Wednesday, SEBI said, “Registered intermediaries shall incorporate AEOI reporting and due diligence requirements into their customer onboarding and Know Your Customer (KYC) frameworks.”
The directions follow the introduction of the Income-tax Act, 2025, and Income-tax Rules, 2026, which replaced the earlier income tax framework with effect from April 1, 2026. According to SEBI, the reporting requirements under the Automatic Exchange of Information (AEOI) framework have been revised for accounts covered under the Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS). FATCA is a US tax compliance framework, while CRS is an international standard for exchanging financial account information between participating jurisdictions to prevent tax evasion.
Regulatory Requirements for Intermediaries
SEBI stated, “All registered Intermediaries, who are RFI [Reporting Financial Institutions], shall take the necessary steps to ensure compliance with Rules 238 to 240 of the IT Rules, 2026.” The regulator has directed intermediaries to review and update their customer self-certification procedures, systems for identifying controlling persons, and account classification processes to distinguish between existing and new accounts.
Software and Reporting Mandates
They must also update their reporting software to incorporate mandatory fields under Form 166 of the revised income tax rules. “Failure to include required fields will result in validation errors on the Income Tax portal,” SEBI warned in the circular.
The regulator has further directed intermediaries to upload FATCA and CRS certifications collected from clients to the systems of KYC Registration Agencies (KRAs). SEBI clarified that “The onus of obtaining and reporting the FATCA and CRS certification and related compliances shall lie solely with the respective intermediaries.”
The latest directions build on SEBI’s earlier circulars issued in August 2015, September 2015 and February 2024 concerning FATCA and CRS reporting requirements. The regulator has also advised intermediaries to refer to the Central Board of Direct Taxes’ guidance note on FATCA and CRS, issued on July 24, 2026, for compliance with the revised rules.
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