Implications of bringing crypto under PMLA

Implications of bringing crypto under PMLA

News: Recently, The Union Ministry of Finance, through a gazette notification, has brought Virtual Digital Assets (VDA) or the Crypto Currency under the Prevention of Money Laundering Act (PMLA).

Which transactions will be covered under PMLA?
 Exchange between virtual digital assets (VDA) and Fiat Currencies.
 Exchange between one or more forms of VDAs
 Transfer of VDAs
 Safekeeping or administration of VDAs or instruments enabling control over VDAs.
 Participation in and provision of financial services related to an issuer’s offer and sale of a VDA.

What is the legal status of Crypto in India?
 In the Union Budget 2022-23, even though the government brought in a tax for cryptocurrencies, it did not proceed with framing regulations.
 Earlier, the Reserve Bank (RBI) of India had proposed a ban that was set aside by Supreme Court order.
 In July 2022, flagging the RBI’s concerns, the finance minister told Parliament that “international collaboration” would be needed for any effective regulation or ban on cryptocurrency.
 From April 2022, India introduced a 30% income tax on gains made from cryptocurrencies.
 In July 2022, rules regarding 1% tax deducted at source on cryptocurrency came into effect.

How is the notification viewed by industry?
 There are concerns raised that the notification does not offer entities time to adhere to the fresh norms.
 The industry is also worried that in absence of a central regulator, crypto entities could end up dealing directly with enforcement agencies like the ED.
 However, a few entities have welcomed the move stating that crypto entities will now be required by law to conduct due diligence and enhanced due diligence under the PMLA. 

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