India’s ultra-rich taking ODI route to bet on crypto markets abroad

Smart rich investors are using the ‘overseas direct investment’ (ODI) route to bet on cryptocurrencies abroad. They are taking this route as the liberalised remittance facility (LRS), the customary window for offshore investments by wealthy residents, is shut for these digital assets, per media reports.

These ultra-high net worth individuals are using a non-banking finance company (NBFC) — preferably an existing local entity — to sponsor an overseas investment company, a wholly-owned subsidiary, in a financial centre like Dubai, said an Economic Times report. The funds used to capitalise this foreign arm is invested in securities and assets abroad, including cryptos sold on trading platforms outside India.

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Sensing RBI’s strong reservations about crypto, large private and foreign banks have been asking investors remitting funds under LRS to give an undertaking that the money would not be used to purchase cryptos.

The preferred route

Under these circumstances, ODI has emerged as a convenient avenue to larger investors who can handle the paperwork. The foreign subsidiary, which can receive investment up to four times the net worth of the local NBFC promoting it, is governed by the laws of the country it’s incorporated in and not Indian regulations.

“Technically, it may not go down well with RBI if investment by the foreign investment company is largely into cryptos. But the central bank may never get to know of it from the annual information which the RBI receives…RBI typically doesn’t ask for their balance-sheets,” a consultant specialising on foreign exchange regulations told The Economic Times.

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Every year, overseas investment companies set up under the ODI route submit basic information like address, capital, turnover, divided and profit to the designated bank handling remittances, which, in turn, uploads the data with RBI.

More checks on crypto trade

Besides blocking payment channels and imposing high income tax on profits from crypto trades, come July, the local crypto community has to deal with the 1 per cent TDS on every crypto sale irrespective of whether money is made. The combination of these factors is driving the high-net worth investors to foreign crypto markets, despite the risks. More so, since most investors believe it would be impossible for the Indian government to collect TDS on trades cut on foreign exchanges.