On 7th March of 2024, i.e., on Tuesday, to secure the oversight of digital assets, the Finance Ministry issued a gazette notification that brings all virtual assets under the provision of money laundering legislation.
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Table of Contents
Virtual digital assets are defined as any code or number or token generated through cryptographic means which promises or represents an inherent value. Digital currencies and assets like Non-Fungible Tokens (NFTs) had spread like wildfire across the globe over the last couple of years. With the launch of cryptocurrency exchanges, trading in these assets has increased manifold. However, India, till last year, struggled to have a clear policy on regulating or taxing such asset classes.
Notification
The Prevention of Money Laundering Act- 2002 envelopes the following activities when carried out for or on behalf of another person in the course of business:
- The exchange involving virtual digital assets and fiat currencies;
- The exchange involving one or more types of virtual digital assets;
- Transfer of virtual digital assets;
- Administration or safekeeping of virtual digital instruments enabling control over these assets; and
- Provision of and participation in financial services involving an issuer’s offer and sale of a virtual digital asset.
Furthermore, this notification directs Indian crypto exchanges to enlighten the Financial Intelligence Unit India (FIU-IND) of any doubtful activity in immediate effect.
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Taxation of Cryptocurrencies
The Finance Minister, Mrs. Nirmala Sitharaman in the Budget for 2022-23, for the first-ever time, ushered cryptocurrencies under the purview of taxation by imposing a 30% tax on income from transactions in such assets. Also, she introduced a 1% TDS (tax deducted at source) on transactions in such asset brackets above a certain threshold. Taxes are also levied on the gifts in crypto and digital assets.
India was in talks with the G-20 member countries highlighting the need to develop a standard operating protocol for modulating crypto assets. The Finance Minister deemed crypto assets and Web3 require significant international collaboration for any specific legislation on these sectors to be fully effective as they are relatively new and evolving sectors.
Support to Investigative Agencies
This measure is anticipated to assist investigative agencies in investigating and keeping an eye on crypto companies. The Enforcement Directorate (ED) and Income Tax Department are already probing several such cases against companies involved in cryptocurrency exchanges and transactions.
In August last year of 2022, ED had frozen bank balances of Rs 64.67 crore belonging to a company running a popular cryptocurrency exchange, WazirX. ED investigated Zanmai Labs for allegedly creating a web of agreements with Binance (Cayman Islands), Crowdfire Inc. (USA), and Zettai Pte Ltd (Singapore), to obscure the ownership of the crypto exchange. The investigative agency had also probed other companies and apps dealing with crypto, such as CoinSwitch, and E-Nuggets in similar cases last year.
Crypto assets by definition, are borderless and intangible. Therefore, any legislation for regulating or banning can be effective only with significant international collaboration on the evaluation of the risks and benefits and evolution of common taxonomy and protocols. The move is in line with the global trend of requiring digital-asset platforms to follow anti-money laundering standards aligned with those followed by other regulated financial entities like banks or stock brokers.
