Cryptocurrency and Money Laundering — Legal Reforms

Entry	Year	Description	Impact
Finance Act, 2022	2022	Introduced a new Section 115BBH in the Income Tax Act, 1961, to tax income from the transfer of Virtual Digital Assets (VDAs) at a flat rate of 30% without any deduction for expenses (except cost of acquisition). It also introduced Section 194S, mandating a 1% Tax Deducted at Source (TDS) on payments made for the transfer of VDAs above a certain threshold.	While primarily a taxation measure, this amendment implicitly recognized VDAs as assets, bringing them into the formal financial discourse. From an AML perspective, the TDS mechanism provides a transactional audit trail, making it harder for large-scale illicit crypto transactions to go unnoticed, thereby aiding enforcement agencies in tracing funds and applying PMLA.
PMLA Notification by Ministry of Finance	2023	The Ministry of Finance issued a notification explicitly bringing Virtual Digital Assets (VDAs) and all related activities (exchange, transfer, safekeeping, administration) under the purview of the Prevention of Money Laundering Act (PMLA), 2002. It designated Virtual Asset Service Providers (VASPs) as 'reporting entities' under PMLA.	This is a direct and significant impact on AML efforts. It formalizes the legal obligation for VASPs to comply with PMLA requirements, including KYC, record-keeping, and reporting suspicious transactions to the Financial Intelligence Unit-India (FIU-IND). This move provides a clear legal basis for investigating and prosecuting crypto-related money laundering cases, aligning India with FATF recommendations and strengthening its regulatory framework.