- As part of its efforts to tighten oversight of digital assets, the government has imposed the Prevention of Money-laundering Act, 2002 on cryptocurrencies or virtual assets.
- The Money Laundering Prevention Act of 2002 now includes various financial activities related to virtual digital assets, such as exchanges between fiat currencies and digital assets, transfer and storage of digital assets, and provision of financial services related to an issuer’s sale of digital assets.
What exactly are cryptocurrencies?
- Cryptocurrencies are digital or virtual currencies that use encryption to secure and verify transactions as well as control the creation of new units.
- They operate independently of central banks and financial institutions and record transactions using blockchain, a decentralised ledger technology.
- They can be used to make purchases, transfer funds, or as a store of value, and some, such as smart contracts, are designed to facilitate specific use cases.
- Although Bitcoin is the first and most well-known cryptocurrency, there are thousands more, including Ethereum, Ripple, and Litecoin.
- Cryptocurrencies can be obtained through mining, which is a process in which computers solve complex mathematical problems to validate transactions and earn new cryptocurrency units as a reward.
Why should cryptocurrencies be regulated?
- Consumer safeguards: Cryptocurrencies are extremely volatile and are vulnerable to fraud, scams, and other forms of financial crime.
- Preventing money laundering and terrorist financing: Because cryptocurrency can be used to transfer funds anonymously, it is appealing to criminals and terrorists.
- Systemic risk: Although cryptocurrencies are not currently a part of the traditional financial system, they may have an impact on it if they become more widely adopted.
- Taxation: Cryptocurrencies can be used to avoid paying taxes or to conceal assets. Regulation can aid in the proper taxation of cryptocurrency transactions and the prevention of tax evasion.
- Market stability: Because cryptocurrency markets are highly volatile, regulation can help promote market stability and prevent excessive speculation or manipulation.
What is the most recent change?
- Indian cryptocurrency exchanges must report any suspicious activity to the Financial Intelligence Unit India (FIU-IND).
- The move is consistent with a global trend of requiring digital-asset platforms to adhere to anti-money laundering standards similar to those observed by other regulated entities such as banks or stock brokers.
Recent regulatory developments
- The finance ministry included a 30% tax on income from such transactions in the Budget for 2022-23.
- In addition, in order to bring such assets into the tax net, it imposed a 1% TDS (tax deducted at source) on transactions in such asset classes exceeding a certain threshold.
- Crypto and digital asset gifts were also taxed.
Source:https://www.thehindu.com/sci-tech/technology/finance-ministry-imposes-money-laundering-provisions-on-cryptocurrencies/article66595663.ece