In an official Gazette notification, the Finance Ministry said that “Exchange between virtual digital assets and fiat currencies, exchange between one or more forms of virtual digital assets, transfer of virtual digital assets, safekeeping or administration of virtual digital assets or instruments enabling control over virtual digital assets, and participation in and provision of financial services related to an issuer’s offer and sale of a virtual digital asset.”

The notification also puts an obligation upon financial institutions to maintain a record of all the transactions of the past ten years and provide the record to officials, of demand. Related businesses must register with the Financial Intelligence Unit (FIU) and comply with all the mandatory provisions mentioned under the Prevention of Money Laundering Act (PMLA). Businesses are obliged to report any suspicious activity to the FIU voluntarily and must designate a Money Laundering Reporting Officer (MLRO) to ensure compliance with the act.

It is pertinent to note that the Finance Minister, Nirmala Sitharaman, in the budget of 2022-23 had brought a 30% tax on income from transactions in such assets. Also, to bring such assets under the tax net, she introduced a 1% TDS (tax deducted at source) on transactions in such asset classes above a certain threshold. Gifts in crypto and digital assets were also taxed.

Virtual Digital Asset: As per Section 2 of the Income Tax Act, virtual digital assets refer to any digital representation of value generated through cryptographic means or otherwise. They are used for financial transactions, investments, or store value. This includes cryptocurrencies, NFTs, and other specified digital assets.