Foreign Exchange is defined as a Foreign Currency under the Sec 2(n) of the FEMA, 6 and Foreign Currency as defined by FEMA under Sec 2(m) is a currency other than an Indian Currency. 7 But the Cryptocurrencies are not considered currency under the FEMA and therefore the cryptocurrency is neither foreign currency nor foreign exchange under the FEMA. IMPLICATIONS UNDER FEMA FOR /09/03 · The compliances under FEMA cover all forms of foreign exchange transactions and remittance payments Overview of Forex Transactions Components of Trade transaction: Movement of goods Movement of documents Movement of funds Governing laws Movement of goods- DGFT/Customs Movement of documents & funds t RBI/FEMA 5
FEMA- Foreign Exchange Management Act | A Complete Guide!
Mondaq uses cookies on this website. By using our website you agree to our use of cookies as set out in our Privacy Policy. 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, forex transactions under fema.
This raises questions under India's foreign exchange control law, i. This article intends to analyze the possible categorization of cryptocurrencies under FEMA and the legal implications to follow. In the landmark judgment of Tata Consultancy Services v. State of Andhra Pradesh1 the constitution bench of Supreme Court decision on the question that whether certain software would fall within the meaning of goods under the state sales tax law and it was held by the majority that the term goods used in the Constitution of India is very wide and under the relevant Act it includes all types of movable properties irrespective of tangible or intangible and a transaction sale of computer software is a sale of goods within the meaning of relevant sales tax act.
In the concurring opinion, Hon'ble Justice Sinha laid down a three-part test for software to classify as goods. However, the judgment is not absolutely in the context of cryptocurrency or its definition under FEMA, but it provides significant interpretational guidance as there is no definition of goods under FEMA. 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, forex transactions under fema of value, micropayments, and decentralized applications. These features and the demand for cryptocurrencies for these purposes indicates their utility, forex transactions under fema.
Therefore, it can be concluded that based on the text of the law, cryptocurrencies are closest to the nature of goods under FEMA and can be classified accordingly. Forex transactions under fema definition of currency under FEMA is forex transactions under fema and includes 'any instrument which can be used to create a financial liability'. The term currency notes means and includes cash in form of coins and banknotes.
Foreign Exchange is defined as a Foreign Currency under the Sec 2 n of the FEMA, 6 and Foreign Currency as defined by FEMA under Sec 2 m is a currency other than an Indian Currency. Cryptocurrency can be classified as goods and that is why if a person resident in India, 8 enters forex transactions under fema transaction with a person resident outside India, it will be considered as export and import and accordingly, the provisions of FEMA will apply to such transactions.
Moreover, under FEMA, all the transactions with a person resident outside India are categorized as capital and current account transactions. It is defined by sec 2 e of FEMA as a transaction that alters the assets or liabilities outside India of persons resident in India or assets or liabilities in India of persons resident outside of India. Forex transactions under fema 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 be India for all legal purposes.
In the other case where forex transactions under fema seller sells it to the person resident outside India and the cryptocurrency gets transferred to such person and the seller will have no rights. In both cases, the transaction does not alter the assets or liabilities of the seller and buyer outside India, forex transactions under fema, and therefore, cannot be classified as capital account transactions.
Current Account Transactions are defined by forex transactions under fema 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 forex transactions under fema 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 outside India or. Category 2- Payment by Cryptocurrency to a person resident outside India for purchasing goods and services from a person resident outside India; or. Category 3- Payment for Cryptocurrency to a person resident outside India in consideration for acquiring other cryptocurrencies from persons resident outside India.
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. When the Cryptocurrency is being transacted outside India by Indian Residents as a mode of payment of services rendered and goods sold by a non-resident, such transaction is most certainly to be classified as an export of goods under the Foreign Exchange Management Export of Goods and Services Regulations10 and the Master Directions on Export of Goods and Services.
This leads to a situation where a cross-border barter would not be permitted. Therefore, a cross-border transfer by Indian residents involving cryptocurrency without any fiat currency through an authorized banking channel violates Export Regulation.
The laws regarding Cryptocurrency is in grey currently as it is not considered currency or legal tender in India. The Enforcement Directorate of FEMA readily raids many Cryptocurrency exchanges operating in India as they tend to violate the foreign exchange laws.
In conclusion, a person resident in India entering into a transaction with a non-resident for the trading cryptocurrency is certainly violating the foreign exchange laws of India. The forex transactions under fema with regards to cryptocurrency are yet to be formulated in India and the regulation is expected to promote and regulate both domestic and international transactions dealing with cryptocurrency.
Email id: vpdalmia vaishlaw. com Mobile No. Kritika Singh Maharashtra National Law University, Aurangabad kritikasingh gmail.
Tata Consultancy Services v. State of Andhra Pradesh 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, forex transactions under fema.
India - The Virtual Currency Regulation Review - Edition 3 - TLR - The Law Reviews. Trading in Virtual Currencies: An analysis under foreign exchange laws of India - Lexology. Master Directions on Export of Forex transactions under fema and Services FED Master Direction No. The content of this article is intended to provide a general guide to the subject matter.
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Learn More Accept. India: Cross Border Transactions: Cryptocurrency And Foreign Exchange Management Act FEMA. by Vijay Pal Dalmia, Partner.
Your LinkedIn Connections with the authors, forex transactions under fema. To print this article, all you need is to be registered or login on Mondaq. 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 outside India of persons resident in India or assets or liabilities in India of persons resident outside of India.
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, forex transactions under fema, the cryptocurrency gets transferred into the buyer's wallet along with the exclusive rights and the location of the assets will be India for all legal purposes.
In the other case where the seller sells it to the person resident outside India and the cryptocurrency gets transferred to such person and the seller will have no rights In 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 outside India or; Category 2- Payment by Cryptocurrency to a person resident outside India for purchasing goods and services from a person resident outside India; or Category 3- Payment for Cryptocurrency to a person resident outside India in consideration for acquiring other cryptocurrencies from persons resident outside India.
com Footnotes 1. State of Andhra Pradesh 2. Section 2 h of the FEMA. Section 2 i of the FEMA 5. India - The Virtual Currency Regulation Review - Edition 3 - TLR - The Law Reviews 6. Section 2 n of the FEMA. Section 2 m of the FEMA. Section 2 v of the FEMA 9. Trading in Virtual Currencies: An analysis under foreign exchange laws of India - Lexology Vijay Pal Dalmia, Partner.
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FEMA : Capital Account Transaction
, time: 4:28FEMA: Current and Capital Account Transactions and release of Foreign Exchange
Overview of Forex Transactions Components of Trade transaction: Movement of goods Movement of documents Movement of funds Governing laws Movement of goods- DGFT/Customs Movement of documents & funds t RBI/FEMA 5 /04/04 · Export Finance, Export Finance Baking & FEMA, FEMA, Uncategorized. Foreign Currency Account OR Forex Transaction Under FEMA. Date: April 4, Author: Mohit 0 Comments. All transactions are to be routed through AD’s (Authorised Dealer). Transactions can be classified into two categories i.e. Current A/c & Capital A/c /04/04 · Under FEMA, one cannot deal with international broker with INR for investing or conversion in the forex market
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