The compliance clock is ticking for India's capital market intermediaries.
In a circular dated November 11, the Securities and Exchange Board of India ordered registered intermediaries qualifying as Reporting Financial Institutions to overhaul their customer onboarding architecture. The mandate forces institutions to re-engineer their Know Your Customer frameworks to track revised reporting under the Foreign Account Tax Compliance Act and the Common Reporting Standard. The regulatory hammer falls well before the transition date.
On April 1, 2026, the long-standing Income-Tax Act, 1961, and Income-Tax Rules, 1962, will formally give way to the Income-Tax Act, 2025, and Income-Tax Rules, 2026. The statutory switch scraps decades of legacy tax reporting.
Under the revised tax code, cross-border financial account reporting shifts under the dominion of Section 508, supported by Rules 238 through 240 and statutory Form 166.
FATCA targets offshore tax evasion by American taxpayers stashing assets across global jurisdictions. CRS operates alongside it as a multilateral information pipeline among participating sovereign states. Intermediaries cannot afford slipshod technical compliance. The regulator warned that firms must upgrade their Form 166 XML generation engines immediately to accommodate newly mandatory fields—or watch their submissions fail on the Income Tax portal.
| Regulatory Parameter | Legacy Framework | Incoming Mandate (April 1, 2026) |
|---|---|---|
| Governing Tax Statute | Income-Tax Act, 1961 | Income-Tax Act, 2025 |
| Governing Procedural Rules | Income-Tax Rules, 1962 | Income-Tax Rules, 2026 |
| Statutory Authority | Section 285BA (Legacy) | Section 508 & Rules 238 to 240 |
| Reporting Instrument | Form 61B schema | Form 166 XML Schema |
| Direct Intermediary Liability | Diffused | Solely on Reporting Financial Institution |
| Storage Integration | Fragmented records |
Every faulty field triggers an outright rejection. System downtime won't excuse missed filings.
The circular demands surgical scrutiny into ultimate beneficial ownership. SEBI instructed intermediaries to retool their self-certification protocols to record validity indicators and actively pinpoint controlling persons behind institutional capital.
Brokers and asset managers must record specific legal roles across non-individual accounts—logging whether an individual operates as a settlor, trustee, protector, or beneficiary. Alongside ownership tracing, account classification systems must distinguish between pre-existing relationships and new client files. Once verified, intermediaries must upload all client FATCA and CRS certifications directly onto the networks of KYC Registration Agencies.
The regulatory boundary is explicit: accountability stops at the broker's desk. SEBI affirmed that the legal responsibility for securing, validating, and submitting client certifications rests solely on the intermediary.
Market Context: The directive arrives as Union Finance Minister Nirmala Sitharaman presses for an integrated, frictionless financial architecture across domestic markets. The Finance Ministry has tasked SEBI with leading the drive toward a unified KYC system to eliminate redundant onboarding steps across banking and capital market ecosystems. Simultaneously, industry groups including the Startup Policy Forum have submitted representations to SEBI and the Finance Ministry urging streamlined KYC procedures for non-resident Indians deploying capital into domestic assets.
Market participants now face an extensive technology sprint. Over the next financial quarters, registered brokerages, depository participants, and asset management companies must reprogram client intake forms, retrain operational desks, and complete schema audits before the April 1, 2026 statutory enforcement date takes effect.
| Mandatory upload to KRA systems |