October 7, 2022
Since the introduction of the concept of blockchain and cryptocurrency, the majority of the jurisdictions have been flooded with cryptocurrencies and digital assets of various kinds. While some nations have determined the methodologies of regulating digital assets, the Indian authorities have only introduced provisions as regards taxation of such assets. The laws as of today in India do not permit the use of such virtual digital assets as currency, i.e. as consideration. However, in light of the relatively relaxed regulatory landscape of neighbouring jurisdictions such as Dubai, numerous high-income Indian citizens have used their crypto-assets as consideration for purchasing a wide variety of goods and services, particularly real estate.
This raises several legal issues as regards such transactions ranging from tax implications to movement of assets for purposes of investments in foreign jurisdictions. It is therefore important to recognise and analyse various laws at play here. Under the Foreign Exchange Management Act, 1999, any transfer of assets from India to a foreign jurisdiction through wallets or intermediaries to invest the same in real estate is a classified irregular transaction under the Act. Additionally, investing in a property in foreign jurisdictions without routing the same through the banking channels is against the regulations prescribed by the Reserve Bank of India. Further, the non-disclosure of such a purchase in the annual tax returns is an offence under the Income Tax Act, 1961.
While on one hand, the transactions involving cryptocurrency are supposed to be encrypted and therefore outside the realm of scrutiny from the regulatory authorities, however, all registrations for real estate involve the collection and submission of legal documents to authenticate the transfer of such property. It is therefore extremely important to realise that such information, in the presence of a regulation permitting transfer of such data to Indian authorities, including the enforcement directorate and the income tax department, has the potential to have far reaching consequences for such individuals investing in real estate with cryptocurrency or digital assets. The multiplicity of offences being committed should ideally act as a deterrent for such investments from Indian nationals, however, the lack of information and regulation in the sector has left many questions unanswered.
It will be interesting to watch if such transactions come under the scanner of the relevant Indian regulatory authorities and what will be the repercussions on such individuals, which shall be highly relevant to the development of jurisprudence in this nascent area of law.
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