Crypto's Regulatory Vacuum Has an NRI Problem Too — Here's What Actually Applies to You

A recent INDIA FOR NRI analysis laid out just how unsettled India's crypto regulation still is. On June 17, the Enforcement Directorate raided six premises across Bengaluru linked to five crypto payment companies, accused of routing over ₹2,500 crore abroad through stablecoin transfers without RBI authorisation. Bank assets worth ₹6 crore were frozen. Tellingly, the action wasn't taken under India's money-laundering law — it was taken under FEMA, a 1999 statute never built with blockchain in mind. Crypto isn't legal tender in India, isn't classified as “currency” or “foreign exchange” under FEMA, and yet is taxed at a flat 30% with 1% TDS on every transfer. There's still no dedicated regulator and no cross-border crypto framework.

For NRIs holding crypto assets abroad, that unsettled legal picture raises real questions — and the honest answer sits somewhere between “it doesn't apply to me” and “I must report everything,” neither of which is quite right.

Does India tax an NRI's foreign-held crypto?

India taxes non-residents only on India-sourced income. Gains from crypto bought, held and sold entirely on a foreign exchange, with no Indian counterparty or platform involved, generally fall outside the Indian tax net for an NRI. The 30% flat tax on virtual digital asset gains (Section 115BBH, carried forward into the Income-tax Act, 2025 effective April 1, 2026) and the 1% TDS under Section 194S apply where the transaction has an Indian nexus — trading through an Indian exchange, or a resident counterparty. Purely offshore activity, with no Indian platform touching the trade, shouldn't attract either. The practical safeguard is documentation: keep a clear record of which exchange you used, where it's based, and what your residential status was on each transaction date.

What about Schedule FA?

This is where most NRIs get anxious for no reason. Schedule FA — the foreign asset disclosure in the Indian income tax return — applies only to Residents and Ordinarily Residents (ROR). Non-residents and RNORs are exempt from disclosing foreign assets altogether, regardless of value or type. An NRI's foreign crypto wallet does not need to appear in Schedule FA.

That changes the moment your residential status changes. Once you settle back in India and cross into ROR status — typically after a few years back — every foreign crypto holding becomes reportable going forward. Missing that shift is where real exposure begins: under the Black Money Act, undisclosed foreign assets attract a flat 30% tax, up to 90% penalty, potential prosecution, and no time limit on reopening the assessment.

FLA return — a different filing entirely

The Foreign Liabilities and Assets (FLA) return, filed annually with the RBI, is often confused with Schedule FA, but it's a different obligation altogether — an entity-level filing for Indian companies and LLPs that have received foreign direct investment or made an overseas direct investment. It has nothing to do with an individual's personal crypto wallet. An NRI holding crypto in a personal capacity has no FLA obligation, unless that crypto sits on the books of an Indian company they hold shares in.

The FEMA trap that's actually worth worrying about

The live risk for NRIs isn't disclosure — it's using crypto as a shortcut for moving money. As the Bengaluru case shows, routing funds through stablecoins instead of an RBI-authorised banking channel is a FEMA contravention regardless of intent, simply because crypto doesn't count as “currency” or “foreign exchange” under the Act — so it doesn't qualify as compliant repatriation either way the money is flowing. Any NRI tempted to use crypto to move money into or out of India faster or cheaper than formal channels — LRS remittances, NRE/NRO transfers — is exposed to exactly the kind of FEMA action the ED just took, frozen accounts included, even where the underlying money is entirely legitimate.

The bigger shift: global reporting is catching up

Separately, under the Income-tax Act, 2025, Section 509(1) requires crypto exchanges and platforms to start reporting user-level transaction data to Indian tax authorities from April 2026, aligning India with the OECD's Crypto-Asset Reporting Framework (CARF). Actual cross-border automatic exchange of that data between participating countries is expected to begin in 2027.

In practice, this means the assumption that offshore crypto holdings are invisible to Indian authorities is on borrowed time. Once CARF exchange starts, foreign platforms in participating jurisdictions will begin sharing account data tied to tax-residency indicators with Indian authorities — much the way FATCA and CRS already do for bank accounts. Today's non-disclosure position for a genuine NRI is legally correct; the underlying facts of what you held, when, and where are still going to become visible over time, particularly once your residency status changes.

The takeaway

An NRI holding crypto entirely offshore isn't required to report it in Schedule FA and shouldn't be taxed on it in India purely by virtue of being non-resident. But two things are converging: India's own regulatory vacuum is producing blunt FEMA enforcement against anyone whose crypto activity touches Indian money flows, and a global automatic-exchange regime is about to make offshore holdings visible to Indian tax authorities regardless of whether you disclose them yourself. The sensible move either way is the same — keep a clean paper trail of where, when, and under what residency status every crypto transaction happened, never use crypto as a workaround for FEMA-compliant remittance, and revisit your reporting position the moment your residency status changes.