Our client, a blockchain expert from India, secured a position with the world’s foremost foundation engaged in crypto mining through blockchain technology as an independent advisor. Instead of receiving conventional payment, the client was remunerated with cryptocurrency, a common practice in the blockchain industry. After the launch of the initial crypto offering, the value of the client’s holdings surged dramatically by 52 times. Seizing the opportunity, the client decided to liquidate all cryptocurrency assets. Our client is an India Tax Resident.
However, various challenges emerged:
- Upon converting the cryptocurrency to Indian Rupees (INR) and depositing it in the savings bank account, the account was unexpectedly blocked due to an investigation into the funds’ source.
- An extensive investigation took place, scrutinizing agreements, invoices, and cross-references related to the cryptocurrency transaction.
- The bank eventually acknowledged the transaction as a legitimate business deal but raised concerns regarding a violation of the Foreign Exchange Management Act, 1999, read with the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000, which stipulate settlements for exports must be made in freely convertible foreign exchange currencies.
- Since the matter remained unresolved, it was escalated to the Reserve Bank of India (RBI) for clarification.
- However, dealing with the RBI presented its own challenges, including determining jurisdiction (regional vs. central) and the inability to regularize the Foreign Exchange Management Act non-compliance through the usual compounding mechanism.
In light of these complexities, it was also vital to assess the tax implications and provide proper guidance to ensure compliance for our client.
