It, however, said "major improvements" were required to strengthen the prosecution in money laundering and terror financing cases.
Global anti-money laundering and terror financing body FATF on Thursday launched its much-awaited mutual evaluation report on India, saying the county's systems were "effective" but "major improvements" were required to strengthen prosecution in these cases.
The 368-page report was released after the assessment was adopted by the Paris-headquartered body at its June plenary meeting.
The last such review of India's combating of money laundering and terror financing regime was published in 2010.
The report, which comes after an on-site visit of FATF experts to India last November, has placed the country in the "regular follow up" category, a distinction shared by only four other G20 countries.
India will undergo its next evaluation in 2031.
The report said India implemented such an anti-money laundering (AML) and combating financing of terror (CFT) system that was effective in many respects.
It, however, said "major improvements" were required to strengthen the prosecution in money laundering and terror financing cases.
It said improvements in the system were also required to protect the non-profit sector from terror abuse.
"India's main sources of money laundering originate from within, from illegal activities committed within country," it said, adding the country faced "disparate" range of terror threats, most significantly from ISIL (Islamic State or ISIS) or AQ-linked groups (Al Qaeda) active in and around Jammu and Kashmir.
The report analyses the level of compliance with the FATF 40 Recommendations and the level of effectiveness of India's AML/CFT system, and provides recommendations on how the system can be strengthened.