Cryptos under PMLA: More clarity needed on the implementation of the law

moneycontrol.com:

Last year, the Union government amended the Income Tax Act to impose a 30 percent tax on the transfer of virtual digital assets (VDAs), with a 1 percent TDS requirement. This was hailed as a major step towards legitimising digital assets in India. On March 7, 2023, the Department of Revenue in the Ministry of Finance issued a landmark notification under the Prevention of Money Laundering Act, 2002 (PMLA) bringing VDAs within the purview of the Act. The PMLA gives the government the authority to notify/identify categories of individuals engaged in a ‘designated business or profession’, who would qualify as a ‘reporting entity’ (RE). This notification is significant since being a RE - which includes banks, financial institutions, intermediaries or a ‘person carrying on a designated business or profession’ - is the trigger for consequences and compliances under the Act. So far, beyond the financial services licensed players, the PMLA umbrella was extended to only casinos, the real estate sector, jewellers, and now the VDA players.

A RE has extensive obligations under the PMLA and rules, including client verification, i.e., know your customer (KYC) and beneficial owners, record-keeping and reporting, including to the Financial Intelligence Unit-India (FIU-IND), transaction due diligence that also covers the source of funds verification, suspicious transaction reporting (STR), and appointment of Designated Director & Principal Officer, with exposure for non-compliance through prescribed financial penalties, audit, enhanced reporting and specific instructions.

The language in the notification is, albeit, wide and covers various VDA activities, including exchange between VDA and fiat currencies (i.e., real money), exchange