Govt imposes PMLA provision against cryptocurrency, assets

Bringing in virtual digital assets under money laundering provisions, the Finance Ministry has notified transactions involving exchange, transfer and safekeeping of crypto assets under the Prevention of Money-laundering Act. The PMLA coverage is set to widen the taxation and regulatory net as it also covers exchange between virtual digital assets and fiat currencies.

This measure is expected to aid investigative agencies in carrying out their actions against crypto companies, with the Enforcement Directorate and Income Tax Department already probing several such cases against companies running cryptocurrency exchanges and transactions.

In August last year, ED had frozen bank balances of Rs 64.67 crore belonging to a company running a popular cryptocurrency exchange, WazirX along with searching premises of a director of the company Zanmai Labs, which was alleged to have created a web of agreements with Crowdfire Inc. USA, Binance (Cayman Islands) and Zettai Pte Ltd, Singapore, to obscure the ownership of the crypto exchange. Other companies and apps dealing with crypto, such as CoinSwitch, E-Nuggets have also been probed by ED in similar cases last year.

In the notification dated March 7, the central government has also notified participation in and provision of financial services related to an issuer’s offer and sale of a virtual digital asset under PMLA. “…the central government hereby notifies that the following activities when carried out for or on behalf of another natural or legal person in the course of business as an activity for the purposes of said sub sub-clause, namely:- (i) exchange between virtual digital assets and fiat currencies; (ii) exchange between one or more forms of virtual digital assets; (iii) transfer of virtual digital assets; (iv) safekeeping or administration of virtual digital assets or instruments enabling control over virtual digital assets; and (v) participation in and provision of financial services related to an issuer’s offer and sale of a virtual digital asset,” it said listing out the nature of transactions to be covered under PMLA.

In the Union Budget last year, even though the government brought in a tax for cryptocurrencies, it did not proceed ahead with framing any further regulations for it despite the Reserve Bank of India having earlier proposed a ban on it that was subsequently set aside by a court order.  From April 2022, India introduced a 30 per cent income tax on gains made from cryptocurrencies. Then in July 2022, rules regarding 1 per cent tax deducted at source on cryptocurrency came into effect.