Article by Vijay Pal Dalmia, Advocate, Supreme Court of India and Delhi High Court, Partner & Head of Intellectual Property Laws Division, Vaish Associates Advocates, India


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 India's foreign exchange control law, i.e., the Foreign Exchange Management Act (FEMA). This article intends to analyze the possible categorization of cryptocurrencies under FEMA and the legal implications to follow.


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 FEMA does not provide for an express definition of goods, and the inclusive definition covers software.

In the landmark judgment of Tata Consultancy Services v. State of Andhra Pradesh,1 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.2

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, 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 FEMA and can be classified accordingly.

The definition of currency under FEMA is inclusive and includes 'any instrument which can be used to create a financial liability'.3 The cryptocurrencies are not named or indicated under the enumerated categories. The term currency notes means and includes cash in form of coins and banknotes.4 Further, in response to an RTI request, the RBI also clarifies that it does not classify cryptocurrency as currency under FEMA.5 Therefore, the cryptocurrencies do not fall under the purview of the term 'currency' under the FEMA as;

  • 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 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.


Cryptocurrency can be classified as goods and that is why if a person resident in India,8 enters into 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.

  1. 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, 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.

  2. 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.

    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


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) Regulations 2015,10 and the Master Directions on Export of Goods and Services.11 These regulations require the full value of any exports to be received through authorized banking channels only and any set-off import payments to be received only through a process facilitated through a bank. 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 regulations 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.


Vijay Pal Dalmia, Advocate
Supreme Court of India & Delhi High Court

Email id:
Mobile No.: +91 9810081079
Twitter: @vpdalmia


Kritika Singh
Maharashtra National Law University, Aurangabad


1. Tata Consultancy Services v. State of Andhra Pradesh (2004)

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 FEMA.

4. 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.

7. Section 2(m) of the FEMA.

8. Section 2(v) of the FEMA

9. Trading in Virtual Currencies: An analysis under foreign exchange laws of India - Lexology

10. Foreign Exchange Management (Export of Goods & Services) Regulations, 2015, FEMA 23(R)/2015-RB.

11. Master Directions on Export of Goods and Services FED Master Direction No. 16/2015-16 Dated 1 st January 2016 amended up to 12th January 2018.

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