The Buying, selling, and storing of Cryptocurrency and other digital assets will now be covered under the Prevention of money laundering Act of 2002 as India joins the global collaborative effort to counter the adverse effects of Crypto trading.
The government has put anti-money laundering rules on cryptocurrencies and other virtual assets in place to tighten its grip on digital assets. The anti-money laundering legislation has been applied to bitcoin trading, storage, and related financial services, the Finance Ministry declared in a gazette notification.
Indian bitcoin exchanges must then report any suspicious behaviour to the Financial Intelligence Unit India (FIU-IND). The move is in line with a global trend that demands digital asset platforms to follow anti-money laundering rules similar to those that are imposed on other regulated businesses like banks or stock brokers.
Over the past few years, digital currencies and assets like NFTs (non-fungible tokens) have acquired popularity on a global scale. But up until last year, India needed a clear strategy for either regulating or taxing these asset classes.
The notification said, “Participation in and provision of financial services related to an issuer’s offer and sale of a virtual digital asset, exchange between one or more forms of virtual digital assets, exchange between one or more forms of virtual digital assets, transfer of virtual digital assets, safekeeping or administration of virtual digital assets or instruments enabling control over virtual digital assets, and safekeeping or administration of virtual digital assets or instruments enabling control over virtual digital assets” will now be covered under the Prevention of money laundering Act
Any code, number, or token produced using cryptographic techniques with the promise or representation of having inherent worth was classified as a virtual digital asset. The necessity to create a standard operating procedure for regulating crypto assets was something that India was considering with the G-20 members, according to Finance Minister Nirmala Sitharaman’s testimony to Parliament last month.
She had claimed that Web3 and crypto assets were still relatively new and developing industries that needed substantial international cooperation to be fully regulated. Since cryptocurrencies are, by nature, borderless, international collaboration is necessary to prevent regulatory arbitrage.
Because of this, only with substantial international cooperation on weighing the risks and rewards, as well as the development of a common taxonomy and criteria, can any legislation for regulation or banning be effective.
She had included a 30% tax on profits from transactions involving these assets in the Budget for 2022–2023. She also instituted a 1% TDS (tax deducted at source) on transactions in these asset types above a certain threshold in an effort to bring such assets into the tax net. Crypto and digital asset gifts were taxed as well.
The Enforcement Directorate has already been looking into cryptocurrency firms, including exchanges CoinSwitch Kuber and WazirX, as part of its mandate to look into money laundering and forex fraud incidents. According to lawyers and industry players, India’s inclusion of cryptocurrency businesses under money laundering regulations has given the industry’s authorities some much-needed strength.
The Reserve Bank of India claims that because cryptocurrencies are comparable to Ponzi schemes, they ought to be banned. Cryptocurrencies will be covered under India’s money laundering legislation, giving officials more control over tracking the transfer of these assets outside of the country. As part of the G-20 summit, India has pressed for a more comprehensive international agreement to handle the risks posed by cryptocurrencies.