On March 7, the government issued a notification bringing transactions involving crypto assets under the Prevention of Money Laundering Act. The nature of transactions to be covered under PMLA are as follows: 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; participation in and provision of financial services related to an issuer’s offer and sale of a virtual digital asset.

The measure is expected to aid investigative agencies in carrying out action against crypto firms.

From April 2022, India introduced a 30 per cent income tax on gains made from cryptocurrencies. In July 2022, rules regarding 1 per cent tax deducted at source on cryptocurrency came into effect.

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Virtual Digital Asset(DVA) under section 2(47A) of the Income Act to include the following:

• Any information or code or number or token (not being Indian currency or foreign currency) which meets certain conditions
• Non-fungible token (NFT) or any other token of similar nature, by whatever name called
• Any other digital asset, as the government may specify by notification
• The government also may exclude any asset from the definition of virtual digital asset by notification.

               A virtual digital asset, to put it simply, is a digital holding that has been encrypted on the blockchain, enabling anyone to confirm its authenticity and determine who owns it. This becomes a unique asset that may be purchased, sold, or transferred to a new owner since it is non-fungible, which means that it cannot be replicated, copied, or hacked.

Cryptocurrencies, non-fungible tokens (NFTs), and decentralised finance are examples of virtual digital assets. The numerous NFTs in digital assets can be virtual real estate, in-game coins or products, digital art, text, photos, movies, music, or other blockchain assets. As per the broad definition, VDAs may also include coupons, reward points given out by online retailers or credit card firms, airline miles, and so on.

What are Non-fungible tokens (NFTs)?

• NFTs are assets that have been tokenized via a blockchain.
• They are assigned unique identification codes and metadata that distinguish them from other tokens.
• NFTs can be traded and exchanged for money, cryptocurrencies, or other NFTs.
• NFTs can represent digital or real-world items like artwork and real estate. They can also represent individuals’ identities, property rights, and more.

The CBDT issued two notifications for the purpose of defining virtual digital asset under section 2(47A) of the Act—one excluding certain assets from the definition, and a second defining NFT for purposes of the section.

The Prevention of Money Laundering Act

The statute of Money Laundering i.e., the Prevention of Money Laundering Act, 2002 has been enacted to combat money laundering in India. It has the following three aims:

To prohibit and control money laundering;To provide for the confiscation and seizure of property obtained through money laundered; and To deal with any other issue connected
with money laundering in India.

             The money obtained through illicit means cannot be used as one’s own economic asset and requires a cleansing of sorts. The legitimization of the money received as gains from an illegal act brings us to the concept of money laundering.

Fiat money is a government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it. The value of fiat money is derived from the relationship between supply and demand and the stability of the issuing government, rather than the worth of a commodity backing it.