High net-worth individuals (HNIs) are transferring their crypto assets to wallets outside of India amidst the regulatory uncertainty prevailing in the country, Economic Times reported on Wednesday.
This is the latest ramification of the Indian government delaying the introduction of the Cryptocurrency and Regulation of Official Digital Currency Bill, which was supposed to be tabled in the parliament in December 2021 but was pushed to the Budget Session, which starts next week. However, reports are suggesting that the Bill may once again be delayed as the government continues to hold more consultations with stakeholders.
Although transferring to wallets outside India may lead to losses since crypto assets trade a premium here, HNIs are willing to take the hit, a tax advisor told ET
Is the transfer of crypto assets abroad allowed?
- No clear norms: “The governing law is FEMA. The norms are clear for stocks and money, but not for crypto, on which interpretations may vary. The RBI has stated that virtual currency is not currency under FEMA and that no guidelines have been framed for virtual currency under FEMA,” Jaideep Reddy, Nishith Desai Associates told MediaNama.
- Determining the location of crypto is not straightforward, but some countries use the location of the owner: Since crypto is part of a global distributed ledger, determining its location is not straightforward, Reddy added. “Interpreting some case-law, it may be possible to take a view that the situs of the crypto is where the owner resides. This principle has been applied by courts in India for intellectual property, and by a UK court in the context of crypto,” Reddy explained.
“Due to these ambiguities, there is an urgent need for Parliament or the RBI to clarify the treatment of crypto under FEMA, so people can plan their affairs accordingly.” – Jaideep Reddy
- RBI could view it as a transfer of money: Adding a word of caution, Anirudh Rastogi, Managing Partner at Ikigai Law, told MediaNama:
“The RBI could possibly take a view that transfer of cryptos across borders is akin to transfer of money, even though the RBI so far does not treat and regulate cryptos as money. Such a view, while open to challenge, could be problematic for the industry because cross-border movement of money is only permitted through banks and is subject to various FEMA requirements.”
- Depending on the threshold: “This could violate FEMA regulations if crypto-assets worth more than $250,000 are transferred during a year,” Siddharth Sogani, founder of CREBACO, a cryptocurrency research firm, told ET.
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