In a move to tighten crypto regulations in the country, the government has announced all types of crypto businesses, including trading, safekeeping and related financial services, will now come under the Prevention of Money-Laundering Act, 2002.
In a notification, the department of revenue under the finance ministry said any exchange between virtual digital assets and fiat currencies; the exchange between one or more forms of virtual digital assets; and the transfer of digital assets would be covered under the said Act.
Safekeeping or administration of virtual digital assets or instruments enabling control over virtual digital assets; and the participation in and provision of financial services related to an issuer's offer and sale of a virtual digital asset will also be covered under the same law, the notification issued on March 7 said.
The Centre is yet to come up with comprehensive legislation on cryptocurrencies, though it has taken some steps to curb its misuse of illegal activities. The current move will give law enforcement agencies more powers to crack down on money laundering via crypto routes.
Earlier, the government had announced a 30% tax on crypto in the Union Budget 2022. It also said a 1% TDS will also be held back each time an investor sells a virtual digital asset over a certain threshold. The new rule mandates a person, who is responsible for paying any resident any sum by way of consideration for the transfer of a virtual digital asset (VDA), to deduct an amount equal to 1% of such sum as income tax.
Despite the growing crypto industry in India, the Reserve Bank has cautioned against risks associated with virtual currency. The RBI in December 2022 said under India’s G20 presidency, one of the priorities for the government is to develop a framework for global regulation, including the possibility of prohibition of unbacked crypto assets, stablecoins and DeFi.
Finance Minister Nirmala Sitharaman last month said the emerging new techs like crypto assets and Web3 require major collaboration on a global level for making specific legislations. "We recognise that it's completely driven by technology and a standalone country's effort in controlling and regulating it is not going to be effective," the FM said in the Lok Sabha.
She said the country aims to discuss the laws related to the crypto industry during G20 meetings, which are currently being held in India. "In the G20, we're raising it and having detailed discussions with members so that a standard operating protocol emerges which results in a coherent, comprehensive approach where all countries work together in bringing some regulation."
During her visit to the U.S. last year in October, the FM had said that India's one agenda during the G20 presidency in 2023 would be developing standard operating procedures (SOPs) for cryptocurrency. She had said that India would want to place the agenda on crypto before the G20 table for discussion and aim for a tech-driven regulatory framework.
