INTRODUCTION
Cross Border Transfer of cryptocurrency is a significant aspect of its being as cryptocurrencies are traded through online platforms and these platforms facilitate the exchange of cryptocurrency into another currency including a fiat currency. This raises questions under
CLASSIFICATION UNDER FEMA
To begin with, according to the Foreign Exchange Management (Exports of Goods & Services) Regulations, 2015, goods and software are treated in the same way and 'software means any computer program, database, drawing, design, audio/video signals, any information by whatever name called in or on any medium other than in or on any physical medium' and as the
In the landmark judgment of
However, the judgment is not absolutely in the context of cryptocurrency or its definition under
Moving forward, it can be observed that cryptocurrencies are intangible and are made, marketed, and stored on physical servers. They can be bought and sold, transmitted, transferred, delivered, stored, and possessed. Cryptocurrencies like Bitcoin and Ethereum are used for various purposes like a store of value, transfer of value, micropayments, and decentralized applications. These features and the demand for cryptocurrencies for these purposes indicates their utility. Therefore, it can be concluded that based on the text of the law, cryptocurrencies are closest to the nature of goods under
The definition of currency under
- It is not included under the definition of currency under the Sec 2(h) of the
FEMA and - Not notified by the RBI as a currency.
Foreign Exchange is defined as a Foreign Currency under the Sec 2(n) of the
IMPLICATIONS UNDER FEMA FOR TRADING IN CRYPTOCURRENCY
Cryptocurrency can be classified as goods and that is why if a person resident in
- Classifying Cryptocurrency Transaction as Capital Account Transaction
It is defined by sec 2(e) of
FEMA as a transaction that alters the assets or liabilities outsideIndia of persons resident inIndia or assets or liabilities inIndia of persons resident outside ofIndia .There are two case scenarios here to answer the question of categorization
In the case of the purchase of cryptocurrency by the buyer from a person resident outside
India , the cryptocurrency gets transferred into the buyer's wallet along with the exclusive rights and the location of the assets will beIndia for all legal purposes. In the other case where the seller sells it to the person resident outsideIndia and the cryptocurrency gets transferred to such person and the seller will have no rightsIn both cases, the transaction does not alter the assets or liabilities of the seller and buyer outside
India , and therefore, cannot be classified as capital account transactions. - Classifying Cryptocurrency Transaction as Current Account Transaction
Current Account Transactions are defined by sec 2(j) of the
FEMA as a transaction other than a capital account transaction and list out four categories of the transactions classified as current account transactions. The trade-in cryptocurrency can be in the following manner:Category 1- Purchase of Cryptocurrency from a person resident outside
India through foreign exchange on payment by fiat currency to a person resident outsideIndia or;Category 2- Payment by Cryptocurrency to a person resident outside
India for purchasing goods and services from a person resident outsideIndia ; orCategory 3- Payment for Cryptocurrency to a person resident outside
India in consideration for acquiring other cryptocurrencies from persons resident outsideIndia .Therefore, any payment made or received in connection with a transaction of cryptocurrency by an Indian Resident with a person from any of the above categories will be considered as payment in the context of foreign trade and would fall under the classification of 'Current Account Transaction' under the
FEMA .9
CROSS- BORDER TRANSACTIONS AND CRYPTOCURRENCY
When the Cryptocurrency is being transacted outside
CONCLUSION
The laws regarding Cryptocurrency is in grey currently as it is not considered currency or legal tender in
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Footnotes
1.
2. 'Goods may be tangible property or intangible property. It would become goods provided it has the attributes thereof having regard to (a) its utility; (b) capable of being bought and sold; and (c) capable of transmitted, transferred, delivered, stored, and possessed. If software whether customized or non-customized satisfies these attributes, the same would be goods.
3. Section 2(h) of the
4. Section 2(i) of the
5.
6. Section 2(n) of the
7. Section 2(m) of the
8. Section 2(v) of the
9. Trading in Virtual Currencies: An analysis under foreign exchange laws of
10. Foreign Exchange Management (Export of Goods & Services) Regulations, 2015,
11. Master Directions on Export of Goods and Services FED Master Direction No. 16/2015-16 Dated 1 st
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