Crypto Currency under the Prevention of Money Laundering Act (PMLA)

The recent move by the Union Ministry of Finance to bring Virtual Digital Assets (VDA) or cryptocurrency under the Prevention of Money Laundering Act (PMLA) has several key points that are important to understand.


Firstly, the move has been made due to the lack of transparency in cryptocurrency transactions, making it difficult to establish a trail. This move pushes the responsibility on cryptocurrency markets to bring transparency to cryptocurrency trading.

Secondly, VDA service providers/businesses have now become the ‘Reporting Entities’ under PMLA Act and are required to follow similar reporting standards and KYC norms as other regulated entities such as banks, securities intermediaries, payment system operators, etc.

The activities covered under PMLA include an 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, and participation in and provision of financial services related to an issuer’s offer and sale of a VDA.

However, the notification does not offer entities time to adhere to the fresh norms, which could lead to concerns in the cryptocurrency industry. Furthermore, there is no central regulator for the crypto industry in India, which could result in crypto entities dealing directly with enforcement agencies like the Directorate of Enforcement (ED).

There are also concerns that the new regulations could lead to a negative impact on tax revenues and decrease transaction traceability, which defeats the two central goals of the extant policy architecture. The VDA tax architecture is likely to further accentuate capital outflow and deter international investors.

To overcome these concerns, exchanges in India should track transfers made by investors within a tax year exceeding a certain amount and report them to the tax authorities. Additionally, the government should adopt a progressive tax structure with differentiated rates for short-term and long-term gains, in line with international best practices.


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