Section 2 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
"Reporting entity" is the central label of Chapter IV of the Act. Section 2(1)(wa) builds it from four limbs: a banking company, a financial institution, an intermediary or a person carrying on a designated business or profession. Each limb is defined in its own clause of section 2(1), and the clauses for client and beneficial owner say whose identity the reporting entity must look through to.
The text consulted is as per the consolidated text of the Act consulted (amendments shown up to 1 August 2019). Later amendments and notifications, including any notification that designates a business or profession or a class of entity, should be checked; this article asserts nothing after that date.
A reporting entity is a banking company, a financial institution, an intermediary or a person carrying on a designated business or profession (section 2(1)(wa)). A financial institution includes a chit fund company, a housing finance institution, an authorised person, a payment system operator, a non-banking financial company and the Department of Posts. A beneficial owner is an individual who ultimately owns or controls a client, or the person on whose behalf a transaction is conducted. Several limbs depend on what the Central Government notifies.
The four limbs of "reporting entity"
Clause (wa) reads: "reporting entity" means a banking company, financial institution, intermediary or a person carrying on a designated business or profession. It was inserted by Act 2 of 2013 (w.e.f. 15-2-2013), as the footnote to the clause prints.
| Limb | Defined in | Short description |
|---|---|---|
| Banking company | Clause (e) | A banking company or co-operative bank to which the Banking Regulation Act, 1949 (10 of 1949) applies, including a bank or banking institution referred to in section 51 of that Act |
| Financial institution | Clause (l) | As defined in clause (c) of section 45-1 of the Reserve Bank of India Act, 1934, plus the listed additions |
| Intermediary | Clause (n) | Four groups linked to the securities market, forward contracts, pension funds and recognised stock exchanges |
| Designated business or profession | Clause (sa) | Casinos, and the activities listed or notified under clause (sa) |
If you hold or advise a business that falls under one limb, our general guides on reporting entity obligations under PMLA and the PMLA compliance checklist for businesses look at the duties. Whether your specific business is caught is a question of the text and any notification, and a legal consultation can help you test it.
Banking company, co-operative bank and housing finance institution
Clause (e) says a "banking company" means a banking company or a co-operative bank to which the Banking Regulation Act, 1949 applies, and includes any bank or banking institution referred to in section 51 of that Act. Clause (i) gives "co-operative bank" the meaning in clause (dd) of section 2 of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 (47 of 1961). Clause (m) gives "housing finance institution" the meaning in clause (d) of section 2 of the National Housing Bank Act, 1987 (53 of 1987).
For the Banking Regulation Act itself, see our post on the Banking Regulation Act, 1949.
Financial institution
Clause (l) was substituted by Act 2 of 2013 (w.e.f. 15-2-2013). It says "financial institution" means a financial institution as defined in clause (c) of section 45-1 of the Reserve Bank of India Act, 1934 (2 of 1934), and includes:
- a chit fund company,
- a housing finance institution,
- an authorised person,
- a payment system operator,
- a non-banking financial company, and
- the Department of Posts in the Government of India.
Printing slip: clause (l) prints "section 45-1" of the Reserve Bank of India Act, while clause (q) prints "section 45-I". The text is quoted here as printed.
The supporting definitions are:
| Clause | Term | Meaning as printed |
|---|---|---|
| (da) | authorised person | As defined in clause (c) of section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999); inserted by Act 21 of 2009 (w.e.f. 1-6-2009) |
| (h) | chit fund company | A company managing, conducting or supervising, as foreman, agent or in any other capacity, chits as defined in section 2 of the Chit Funds Act, 1982 (40 of 1982) |
| (q) | non-banking financial company | As in clause (f) of section 45-I of the Reserve Bank of India Act, 1934; the footnote shows the words "and includes a person carrying on designated business or profession" were omitted by Act 2 of 2013 |
| (rb) | payment system | A system enabling payment between a payer and a beneficiary, involving clearing, payment or settlement service or all of them |
The Explanation to clause (rb) says "payment system" includes systems enabling credit card operations, debit card operations, smart card operations, money transfer operations or similar operations. Clause (rc) says a "payment system operator" is a person who operates a payment system, and includes his overseas principal. The Explanation to clause (rc) defines "overseas principal" for an individual residing outside India, for the Karta of a Hindu undivided family residing outside India, and for a company, firm, association of persons, body of individuals or artificial juridical person incorporated or registered outside India, in each case where the person owns, controls or manages, directly or indirectly, the activities or functions of a payment system in India. See our posts on NBFC registration and the Payment and Settlement Systems Act, 2007 for those regimes in general.
Intermediary
Clause (n), substituted by Act 2 of 2013 (w.e.f. 15-2-2013), defines "intermediary" as:
- a stock-broker, share transfer agent, banker to an issue, trustee to a trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser or any other intermediary associated with the securities market and registered under section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992); or
- an association recognised or registered under the Forward Contracts (Regulation) Act, 1952 (74 of 1952) or any member of such association; or
- an intermediary registered by the Pension Fund Regulatory and Development Authority; or
- a recognised stock exchange referred to in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956).
In sub-clause (i) the footnote shows that the word "sub-broker," was omitted by Act 23 of 2019, section 192 (w.e.f. 1-8-2019). Our guide to the SEBI Act, 1992 describes that regime in general.
Person carrying on designated business or profession
Clause (sa) lists the persons covered. Sub-clause (ii) was substituted by Act 23 of 2019, section 192 (w.e.f. 1-8-2019).
| Sub-clause | Person |
|---|---|
| (i) | A person carrying on activities for playing games of chance for cash or kind, including activities associated with a casino |
| (ii) | The Inspector-General of Registration appointed under section 3 of the Registration Act, 1908 (16 of 1908), as may be notified by the Central Government |
| (iii) | A real estate agent, as may be notified by the Central Government |
| (iv) | A dealer in precious metals, precious stones and other high value goods, as may be notified by the Central Government |
| (v) | A person engaged in safekeeping and administration of cash and liquid securities on behalf of other persons, as may be notified by the Central Government |
| (vi) | A person carrying on such other activities as the Central Government may, by notification, so designate, from time to time |
Three related definitions complete the group:
- Clause (sb): "precious metal" means gold, silver, platinum, palladium or rhodium or such other metal as may be notified.
- Clause (sc): "precious stone" means diamond, emerald, ruby, sapphire or any such other stone as may be notified.
- Clause (va): "real estate agent" means a real estate agent as defined in clause (88) of section 65 of the Finance Act, 1994 (32 of 1994).
Because sub-clauses (ii) to (v) depend on notification by the Central Government, the text does not tell you whether a given real estate agent, dealer or custodian is covered. That answer lies in the notifications, which are not in the text consulted. Our guide on PMLA compliance for the real estate sector discusses the sector in general terms.
Client and beneficial owner
Clause (ha) defines "client" as a person who is engaged in a financial transaction or activity with a reporting entity, and includes a person on whose behalf the person who engaged in the transaction or activity is acting. Clause (fa) defines "beneficial owner" as an individual who ultimately owns or controls a client of a reporting entity or the person on whose behalf a transaction is being conducted, and includes a person who exercises ultimate effective control over a juridical person. Both were inserted by Act 2 of 2013 (w.e.f. 15-2-2013).
This definition belongs to the Prevention of Money-laundering Act and is read with the duties of a reporting entity. It is a separate test from any "beneficial owner" or "significant beneficial owner" notion in company law, and this article does not mix the two. How a reporting entity identifies a beneficial owner is dealt with in the Maintenance of Records Rules, covered later in this series, and in section 11A on verification of identity.
An example
Kestrel Gold Traders, a dealer in precious metals, wants to know whether it is a reporting entity. Clause (sa)(iv) refers to a dealer in precious metals, precious stones and other high value goods "as may be notified by the Central Government". The partner, Mr Dev Malhotra, finds that the Act text alone cannot answer; he must check whether and how a notification has designated such a dealer. If Kestrel is covered, a customer who buys on behalf of another is a "client" under clause (ha), and the individual who ultimately controls a company customer is its "beneficial owner" under clause (fa).
Other laws named in section 2 are quoted as printed. The reader should check the current procedural, penal or other law for the corresponding provision of each enactment named.
Need help with reporting entity status?
Whether a business is a reporting entity turns on definitions, cross-references to other Acts and notifications that are outside the text. For a structured review of your status and the records you hold, speak to us through legal consultation.
Key takeaways
- A reporting entity is a banking company, financial institution, intermediary or a person carrying on a designated business or profession.
- A financial institution includes a chit fund company, housing finance institution, authorised person, payment system operator, non-banking financial company and the Department of Posts.
- An intermediary is tied to registration under the SEBI Act, the Forward Contracts (Regulation) Act, 1952, the Pension Fund Regulatory and Development Authority or recognition as a stock exchange.
- Clause (sa)(ii) to (v) depend on notification by the Central Government.
- The Act's "beneficial owner" is an individual who ultimately owns or controls a client or the person on whose behalf a transaction is conducted.
- Clause (l) prints "45-1" and clause (q) "45-I" for the same Reserve Bank of India Act section; quote as printed.
Read next
- Section 1 and the authority terms defined
- Proceeds of crime, property, scheduled offence and other key terms
- Section 12: reporting entity to maintain records
- PMLA 2002 and money laundering compliance for banks, NBFCs and businesses
Disclaimer: Based on the consolidated text of the Prevention of Money-laundering Act, 2002 published by the Enforcement Directorate, showing amendments up to Act 23 of 2019 (1 August 2019), and on the Department of Revenue consolidated copy of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005 listing amendments up to 19 July 2024, as consulted on 2 October 2026. Later amendments, notifications, other rules and regulator directions should be checked. This article is general information, not legal advice; check the official text before acting.