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Author Topic: Are FEMA laws retrospective?  (Read 1504 times)

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Offline pikpok

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Are FEMA laws retrospective?
« on: March 10, 2016, 11:38:06 AM »
hi

if i receive digital assets from abroad for providing genuine services and sell those assets in India for Rupees, all this should not come under FEMA because that digital asset is not recognized as a "currency" by RBI.

But if RBI decides to regulate this digital asset as a currency in the future, it might make my earlier receipt of digital assets a violation of FEMA, right (because it was sent by someone abroad)?

will this make me susceptible to action from authorities in the future?

(assume that i will pay taxes on the money i make from selling these assets in India)

also, if they regulate something that wasn't a currency as a currency, how should we generally treat older transactions when it wasn't classified as a currency?

thank you

Offline rajgopal sripathi

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Re: Are FEMA laws retrospective?
« Reply #1 on: March 11, 2016, 06:59:38 AM »
Hi
RBI does not have any law under Digital assets as of today.  As of todaay Digital Assets are not recognized as a currency though RBI is aware of its existence and has consciously chosen to keep quite on the subject.

However FEMA will apply as Powers under FEMA are not based on currency/Digital Asset but on the nature of transaction itself.
Referring to Section 3 of FEMA it can be stated here that, purchasing of digital assets  by a resident Indian from a person resident outside India (through legitimate banking channels) will not be in violation of FEMA. Further,digital assets transaction between two
residents should also not trigger FEMA and should not therefore be in violation of the same. However, the sale of Digital Assets  to a non-resident person (i.e. to a  person outside India) by a resident Indian will be in violation of the provisions of the FEMA. Further, it
can also be regulated by RBI in this condition.
So the catch is a sale of digital assets to a non resident person will definitely be an issue.
Also to note that in the event of you providing services (exports) to overseas clients, then your remittances should be through recognised currency(not digital assets).
so you are treading a path which officially everyone is aware of but nobody wants to regulate it (but can choose to regulate whenever things go beyond control)/
Rajgopal Sripathi
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Offline pikpok

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Re: Are FEMA laws retrospective?
« Reply #2 on: March 11, 2016, 10:43:18 AM »
thanks  for the answer

but i dont follow

"Also to note that in the event of you providing services (exports) to overseas clients, then your remittances should be through recognised currency(not digital assets)."

is it illegal to accept digital assets from abroad for services ? where does it actually say so?

when they do regulate it, how will older transactions before regulation be treated?

thanks again
« Last Edit: March 11, 2016, 10:45:34 AM by pikpok »

Offline pikpok

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Re: Are FEMA laws retrospective?
« Reply #3 on: March 11, 2016, 11:16:40 AM »
also why can we not treat receipt from abroad of digital assets for services as "barter transactions" ?

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Re: Are FEMA laws retrospective?
« Reply #4 on: March 14, 2016, 09:59:39 AM »
Hi
The receipts for exports should be in Currency only.
Digital assets or any other barter system is not allowed for export receipts as per Law.
Yes. technically if you have received payments  for exports in the form of digital assets  or made payments to a non resident indian in form of digital assets, it is a FEMA violation.
Older transactions in Digital assets will be considered as a violation.(suppose you have designed a web page for an overseas client and received payments in form of digital assets, then the DRI will put a value in USD for web page designed by you and ask you to make the client pay in USD or will attach your assets till such time the payment is made at current foreign exchange rates.
Rajgopal Sripathi
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Re: Are FEMA laws retrospective?
« Reply #5 on: March 15, 2016, 08:10:59 AM »
Hi
The receipts for exports should be in Currency only.
Digital assets or any other barter system is not allowed for export receipts as per Law.
Yes. technically if you have received payments  for exports in the form of digital assets  or made payments to a non resident indian in form of digital assets, it is a FEMA violation.
Older transactions in Digital assets will be considered as a violation.(suppose you have designed a web page for an overseas client and received payments in form of digital assets, then the DRI will put a value in USD for web page designed by you and ask you to make the client pay in USD or will attach your assets till such time the payment is made at current foreign exchange rates.

thank you rajgopals.

will it still be a violation even if one does NOT convert digital assets to INR?

also i have read that there is a minimum amount for something to count as fema violation (30 lakh is what i read). is this true? would it be an issue on small amounts too?

can this also attract a fine/penalty/other punishment other than confiscation of digital assets (if the client won't pay in USD)?

Offline rajgopal sripathi

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Re: Are FEMA laws retrospective?
« Reply #6 on: March 15, 2016, 09:58:50 PM »
Hi
The best option would be to stop the practice of dealing in digital assets and conduct future dealings in INR/USD/Currency.

There is no minimum amount to come under FEMA violation.

However we can claim ignorance if we have about 5/6 transactions and cumulative value of these transactions do not exceed USD20,000-/- (20,000 -/- is the legally permissible limit an indian can buy foreign exchange for trade/exhibitions/purchase of sample etc)

If the value of transactions exceed USD20000-/- then we have no legal cover per se and will need to go by what DRI/ED guys say as illegal.

DRI guys always focus on fines/penalties only. they dont have the concept of punishment or seizure of digital assets.
Rajgopal Sripathi
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email:rajgopal@legalwin.in

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Re: Are FEMA laws retrospective?
« Reply #7 on: March 15, 2016, 10:55:07 PM »
Hi
The best option would be to stop the practice of dealing in digital assets and conduct future dealings in INR/USD/Currency.

There is no minimum amount to come under FEMA violation.

However we can claim ignorance if we have about 5/6 transactions and cumulative value of these transactions do not exceed USD20,000-/- (20,000 -/- is the legally permissible limit an indian can buy foreign exchange for trade/exhibitions/purchase of sample etc)

If the value of transactions exceed USD20000-/- then we have no legal cover per se and will need to go by what DRI/ED guys say as illegal.

DRI guys always focus on fines/penalties only. they dont have the concept of punishment or seizure of digital assets.

Thanks a lot rajgopals!

as far conversion to fiat goes, will they be any stricter or will the violation be any more "wrong" if the digital assets are converted to INR (by selling to other Indians) instead of keeping them as they are?

Offline rajgopal sripathi

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Re: Are FEMA laws retrospective?
« Reply #8 on: March 15, 2016, 11:42:15 PM »
Hi
Convert your digital assets to INR at the earliest.
The laws are getting stricter day by day. so prevention is better than cure.
Rajgopal Sripathi
Mobile:9704772200
email:rajgopal@legalwin.in

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Re: Are FEMA laws retrospective?
« Reply #9 on: March 16, 2016, 12:27:07 AM »
Hi rajgopals,

given how you said any FEMA regulations will be retrospective in nature anyway are you saying that the government might restrict the sale of digital assets / make it illegal?

can you please explain what we might be preventing by selling it earlier?

thanks again for your immense help!

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Re: Are FEMA laws retrospective?
« Reply #10 on: March 16, 2016, 12:46:00 AM »
Hi
Going by what i hear from RBI, they are planning to issue a directive on digital assets by Sep 2016. That will  make all transactions illegal.
once the directive is issued, then DRI / FIU will commence their investigations.
So i mentioned that convert your digital assets at the earliest(meaning as soon as possible)
Rajgopal Sripathi
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email:rajgopal@legalwin.in

Offline pikpok

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Re: Are FEMA laws retrospective?
« Reply #11 on: March 16, 2016, 01:17:57 AM »
Hi
Going by what i hear from RBI, they are planning to issue a directive on digital assets by Sep 2016. That will  make all transactions illegal.
once the directive is issued, then DRI / FIU will commence their investigations.
So i mentioned that convert your digital assets at the earliest(meaning as soon as possible)

but will such a directive be retrospective? what about people who didn't expect such a law to get passed?

by the way this directive will address the general use of digital assets, right? it will not be FEMA specific, right? are you certain that RBI will not allow transactions involving digital assets?

thank you

Offline rajgopal sripathi

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Re: Are FEMA laws retrospective?
« Reply #12 on: March 16, 2016, 01:49:51 AM »
HI
Any investigation under FEMA will always be retrospectively only .
People who did not expect the law to be passed will be affected. (the government argument will be that whole of trading in digital assets was illegal right from beginning) and hence illegal.
From what i hear, RBI will clamp down digital assets in sep 2016. No doubt on this one.
Rajgopal Sripathi
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email:rajgopal@legalwin.in

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Re: Are FEMA laws retrospective?
« Reply #13 on: March 16, 2016, 02:53:21 AM »
if digital asset trading itself becomes illegal,won't paytm become illegal? :)

one small clarification out of curiosity, is rbi planning to clamp down cross border digital asset transactions or inside India also? i cannot imagine how such transactions can be made "illegal" because it is just exchange of "software", but I guess it is safe to stay away from all non-regulated currencies until laws are made and ask clients to pay only in regulated currencies.

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Re: Are FEMA laws retrospective?
« Reply #14 on: March 16, 2016, 03:35:43 AM »
Hi
RBI is clamping down on cross border digital asset transactions.
Yes it is safe to ask clients to pay only in regulated currencies.
Rajgopal Sripathi
Mobile:9704772200
email:rajgopal@legalwin.in

 

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