Money laundering and the PMLA
How the law works, when tax evasion triggers it, and the reporting that surfaces it
The Prevention of Money Laundering Act (PMLA) targets the laundering of proceeds of crime, but it cannot operate in a vacuum: there must be an underlying scheduled (predicate) offence that generated the tainted money. Serious tax and customs offences are scheduled offences, so laundering tax-evaded funds can bring the Enforcement Directorate in alongside the income-tax department, with powers to attach property and prosecute. Separately, reporting entities (banks, NBFCs, securities and payment firms, and since 2023 crypto exchanges) report transactions to FIU-IND, including every cash transaction of Rs 10 lakh or more (CTR) and any suspicious transaction (STR, with no threshold). This is high-stakes legal territory, awareness, and counsel, not self-help.
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Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact Income Tax Department. Read our editorial scope →
How the PMLA works
Money laundering under the PMLA is the concealment, possession, use or projection-as-untainted of the proceeds of crime, with knowledge or intent. The essential precondition is a scheduled offence: the proceeds must come from a predicate offence listed in the Act's schedule. Without a scheduled offence there are no proceeds of crime and no PMLA case. Because certain serious tax and customs offences are scheduled, laundering funds generated by tax evasion can attract the PMLA, which is why aggressive evasion structures can escalate from a tax matter into an Enforcement Directorate one.
The Enforcement Directorate's powers
The Enforcement Directorate (ED) is the nodal agency. It can register a case (an ECIR), provisionally attach property believed to be proceeds of crime (for around 180 days, confirmed by an adjudicating authority), and pursue confiscation on adjudication and prosecution, which carries rigorous imprisonment and a fine. In practice the income-tax department and the ED coordinate: where the department detects concealed income, shell entities or benami holdings, it can share intelligence indicating laundering, leading to an ED case alongside the tax recovery, so a single structure can face parallel proceedings.
warningPMLA proceedings run parallel to, and can escalate from, a tax investigation. ED attachment and prosecution are serious criminal exposure. This is firmly legal territory, engage specialist counsel early; it is not something to handle alone.
FIU-IND reporting surfaces transactions
Much of what feeds the system comes from mandatory reporting to the Financial Intelligence Unit (FIU-IND) by reporting entities, banks, NBFCs, insurers, securities and payment-service providers, and, since the 2023 extension, crypto and virtual-digital-asset service providers. The key reports are the Cash Transaction Report (every cash transaction of Rs 10 lakh or more in a day), the Suspicious Transaction Report (any suspicious transaction, no threshold, filed without tipping off the customer), and cross-border wire-transfer reports. So large cash dealings and suspicious patterns are visible to the authorities by design, which is another reason the cash-limit rules and clean banking matter.
tipAssume large cash and unusual transactions are reported: banks file a Cash Transaction Report on every Rs 10 lakh-plus cash transaction and a Suspicious Transaction Report on anything unusual, and crypto exchanges now report too. Keeping dealings clean and within the cash limits is the simplest protection.
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Source / notes
- Prevention of Money Laundering Act 2002 s.2(1)(y) (scheduled offence) + s.3 (money laundering) + s.5 (attachment)
- FIU-IND reporting (CTR Rs 10 lakh/day; STR no threshold; CBWTR); PMLA 2023 extension to VDA service providers
- Income-tax Act 1961 s.68 (unexplained credits) as a coordinating tax proceeding
Frequently asked questions
Can tax evasion lead to a money-laundering case?+
Yes, where the evasion is a scheduled offence. Money laundering under the PMLA requires proceeds of a predicate (scheduled) offence, and certain serious tax and customs offences are scheduled. So laundering funds generated by tax evasion can bring the Enforcement Directorate in alongside the income-tax department, escalating a tax matter into criminal money-laundering exposure with attachment and prosecution.
What can the Enforcement Directorate do?+
It can register a case (an ECIR), provisionally attach property it believes to be proceeds of crime (for around 180 days, subject to confirmation), and pursue confiscation and prosecution, which carries rigorous imprisonment and a fine. The ED and the income-tax department coordinate, so concealed income, shell entities or benami holdings detected on the tax side can trigger an ED case in parallel.
What transactions do banks report to the authorities?+
Reporting entities file reports with FIU-IND: a Cash Transaction Report for every cash transaction of Rs 10 lakh or more in a day, a Suspicious Transaction Report for any suspicious transaction (no threshold, and without tipping off the customer), and cross-border wire-transfer reports. Banks, NBFCs, insurers, securities and payment firms all report, and since 2023 so do crypto and virtual-digital-asset service providers.
How do I stay clear of PMLA risk?+
Keep your dealings clean and documented, and stay within the cash-transaction limits. Money laundering requires proceeds of an underlying crime, so the protection is not to generate tainted funds in the first place: declare income properly, avoid benami and shell structures, and route significant transactions through the banking system. Because large cash and suspicious transactions are reported by design, opacity is a risk, not a shield.
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