Money laundering laws will now cover cryptocurrency trade

Indian cryptocurrency exchanges will have to report suspicious activity to the Financial Intelligence Unit India

Updated - March 09, 2023 08:56 am IST

Published - March 08, 2023 06:39 pm IST - New Delhi

In a gazette notification, the Finance Ministry said the anti-money laundering legislation has been applied to crypto trading, safekeeping and related financial services. File

In a gazette notification, the Finance Ministry said the anti-money laundering legislation has been applied to crypto trading, safekeeping and related financial services. File | Photo Credit: Reuters

The government has imposed money laundering provisions on cryptocurrencies or virtual assets as it looks to tighten oversight of digital assets.

In a gazette notification, the Finance Ministry said the anti-money laundering legislation has been applied to crypto trading, safekeeping and related financial services.

After this, Indian crypto exchanges will have to report suspicious activity to the Financial Intelligence Unit India (FIU-IND).

The move is in line with the global trend of requiring digital-asset platforms to follow anti-money laundering standards similar to those followed by other regulated entities like banks or stock brokers.

Digital currency and assets like NFTs (non-fungible tokens) have gained traction globally over the last couple of years. Trading in these assets has increased manifold with cryptocurrency exchanges being launched. However, India, till last year, did not have a clear policy on either regulating or taxing such asset classes.

The notification said, "Exchange between virtual digital assets and fiat currencies, 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 participation in and provision of financial services related to an issuer's offer and sale of a virtual digital asset" will be now be covered by Prevention of Money-laundering Act, 2002.

Virtual digital assets were defined as any code or number or token generated through cryptographic means with the promise or representation of having inherent value.

Last month, Finance Minister Nirmala Sitharaman told Parliament that India was discussing with the G-20 member countries the need to develop a standard operating protocol for regulating crypto assets.

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She had said crypto assets and Web3 are relatively new and evolving sectors and require significant international collaboration for any specific legislation on these sectors to be fully effective.

Crypto assets are by definition borderless and require international collaboration to prevent regulatory arbitrage. Therefore, any legislation for regulation or for banning can be effective only with significant international collaboration on the evaluation of the risks and benefits and evolution of common taxonomy and standards.

In the Budget for 2022-23, she had brought a 30% tax on income from transactions in such assets. Also, to bring such assets under the tax net, she introduced a 1% TDS (tax deducted at source) on transactions in such asset classes above a certain threshold. Gifts in crypto and digital assets were also taxed.

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