prpri Crypto Currency (Rules, definition, method & eligibility) All about Crypto Currency (Rules, definition, method & eligibility)

Laws Applicability:

Foreign Exchange Management Act (FEMA).

Any payment made or received in connection with a transaction of crypto currency by an Indian Resident with a person with above category will be considered as payment in the context of foreign trade and would fall under the classification of ‘Current Account Transaction’ under the FEMA.

The legal framework for administration of exchange control in India is provided by the Foreign Exchange Management Act, 1999. Under the Act, freedom has been granted for buying and selling of foreign exchange for undertaking current account transactions.

Definition: Crypto currencies are not considered currency under the FEMA and therefore the crypto currency is neither foreign currency nor foreign exchange under the FEMA. It can be classified as goods and it will covered under Current account transactions of FEMA.

A crypto currency is a medium of exchange that is digital, encrypted and decentralized. Unlike the U.S. Dollar or the Euro, there is no central authority that manages and maintains the value of a crypto currency. Instead, these tasks are broadly distributed among a crypto currency’s users via the internet.

A person resident in India entering into a transaction with a non-resident for the trading crypto currency is certainly violating the foreign exchange laws of India. The regulations with regards to crypto currency are yet to be formulated in India and the regulation is expected to promote and regulate both domestic and international transactions dealing with crypto currency. But for sending money to foreign resident we have to comply with the following conditions:

Key Pints:

1. Applicant Should Take Necessary approval from RBI for sending money outside India.

2. RBI will see Applicants Track Record, Professional Competence, Financial Soundness, Experience, etc.

3. Whether Applicant is Investment Company, Investment Trust, Investment Partnership, Pension Fund, Mutual fund, or any other entity incorporated Outside/Inside India.

4. It should be authorized to invest in venture capital funds or carry on activity as a foreign venture capital Investors.

5. While sending the money abroad, the money is routed through intermediary banks before it finally reaches abroad to its beneficiary. These intermediary banks generally charge a certain amount of money for this service called the intermediary bank charges.

6. It shall appoint a Domestic Custodian for the purpose of custody of Securities and enter into agreement with custodian.

7. Then Applicant shall give an application to RBI for receiving crypto and selling them to in Indian Market.


  • If we will go by normal procedure without RBI approval/intimation:- Any person resident in India can remit upto USD 5,000 in any one year as a gift to a person residing outside India or as donation to a charitable/educational/religious/cultural organization outside India. Remittances exceeding the limit require prior permission from the Reserve Bank.
  • Any individual can send or transfer money abroad without taking any prior permission from RBI or FEMA. The purpose of sending money abroad must not fall under any prohibited or illegal schedule. The residents do not need to seek approval up to USD 2,50,000 per financial year for overseas remittances.

Tax on arbitration fund:

These funds are treated as equity funds for taxation. If you stay invested for less than one year, then you make short-term capital gains (STCG) which are taxable. STCG is taxed at a rate of 15%. If you stay invested for more than a year, then gains will be considered as long-term capital gains (LTCG). LTCG over Rs.1 lakh a year is taxed at the rate of 10% without the benefit of indexation. Instead of sticking to pure debt funds, these funds are suitable for conservative investors who are in higher tax brackets to earn tax-efficient returns.


There have been reports on transfers being made outside India that have faced the issues with the tax and regulatory authorities for a long time. Indian foreign exchange regulations are stringent, and it is essential to be aware of these regulations while making any transfers/remittances outside India.

The RBI, is against other virtual crypto currencies, has warned people against such currencies several times in the past. It has indicated that it is “very much in the game”, and getting ready to launch its own digital currency. “Central bank digital currency is a work in progress. The RBI team is working on it, technology side and procedural side… how it will be launched and rolled out,” RBI Governor Shaktikanta Das said recently.

This is not an easy question to answer, to be honest. The Indian government still isn’t very sure about how to deal with this new phenomenon. But here are few facts. In 2018, RBI came out strongly and kind of banned these in India. Then in 2020, the Supreme Court of India reversed RBI’s ban of 2018. This was followed by the Indian banks curtailing transactions with crypto-exchanges as, in their view, they are governed by the RBI (2018) and not directly by the Supreme Court (2020). But a few days back, RBI said that the banks cannot quote its 2018 ban to its customers as it was overruled by the Supreme Court!

The Reserve Bank of India (RBI), the apex bank in India, and the regulator of foreign exchange dealings have laid down guidelines on outward remittance of funds outside India. There are separate guidelines for residents and non-residents. And individuals and companies must be aware of the policies and guidelines that is where we can help you. We can assist you in understanding the regulations as well as guide you throughout the process.

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One Comment

  1. Subramanian Natarajan CPA says:

    Yes, RBI is already seriously looking into digital currency.
    Please read my article on central bank digital currency.
    The article is very informative.

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August 2021