Crypto grants from Cayman foundations to Indian developers

The decision before payment

Three arrangements require separate treatment:

• Support for the developer's own qualifying programme can be foreign contribution. The company needs the applicable permission under India's Foreign Contribution (Regulation) Act (FCRA), approved purpose and receipt arrangements before accepting it.
• Payment for identifiable development services can fall outside foreign contribution under the ordinary-course services exclusion. The company must document the real service and comply with the applicable export, receipt and tax rules.
• Funding for shares, repayment rights or another investment entitlement needs the route applicable to that instrument. A grant agreement cannot supply missing investment or borrowing permissions.[1]

For each arrangement, specify fiat payment through the bank account required for its legal route. Direct stablecoin or native-token delivery needs a separately established legal route; a wallet transfer alone does not establish compliance with the rules discussed below.[2]

Licentium's analysis of offshore structures for crypto projects explains the foundation and development-company relationship. The additional decision here concerns the Indian recipient's ability to receive and use the money.

Support for the developer's own programme

A foundation established outside India is a foreign source for FCRA purposes. Foreign contribution includes donations, deliveries or transfers of currency, specified articles or securities from a foreign source. The Indian recipient's private-company form creates neither a general exemption nor automatic eligibility. FCRA registration applicability depends on the recipient, the programme, the receipt and the statutory conditions.[3]

For a recipient with a definite cultural, economic, educational, religious or social programme, section 11 requires registration or prior permission. Section 3 prohibitions and section 12 eligibility conditions must also be satisfied. A programme cannot qualify merely because its software is free to download. Ministry of Home Affairs (MHA) guidance recognises that a private company can apply for socially beneficial work, but that guidance does not approve this developer or its proposed activity.[4]

The June 2026 rules make the purpose assessment more specific. Registration certificates must identify permitted purposes from the June 2026 Schedule and the States or Union Territories of activity. The Schedule includes defined research, skills and digital-inclusion activities. Its economic category also includes socially oriented micro, small and medium enterprise (MSME) initiatives on a non-profit or community-benefit basis. These entries do not automatically cover a commercial protocol-development business. Registrants existing when the June 2026 rules took effect must submit Form FC-6F within the prescribed one-year transition; subsequent purpose or territorial changes require the applicable approval process. Funded activities must be carried out in India; globally accessible code does not, by itself, establish where those activities occur.[5]

If the actual project qualifies, registration suits an eligible organisation's continuing programme. Prior permission is the route to examine for a specified donor, amount and project. It is not an exemption from eligibility scrutiny. The prior-permission application requires the donor commitment and project budget to correspond. The permission's source, purpose, amount and conditions control the receipt; the registration rules should not be treated as an interchangeable permission certificate. Common members or key functionaries linking donor and recipient require the specific independence checks. Foreign-national key functionaries also require assessment under the eligibility rule and its exceptions.[6]

The contribution sequence should be agreed before disbursement:

1. The company and Indian counsel map its actual activities, office-bearers and proposed expenditure to the Act and current rules. They check any existing certificate's validity and scope.
2. The company establishes the designated FCRA receipt account at State Bank of India's New Delhi Main Branch before applying. Permitted utilisation accounts may follow; receipts that are not foreign contribution must not be mixed into FCRA accounts.
3. The foundation supplies its identity, commitment and funding terms. The company submits Form FC-3A for registration or FC-3B for prior permission, with the required supporting records, and obtains the necessary approval before receipt.
4. The foundation remits the approved contribution to that account. The company applies it to the approved activity and maintains separate accounts and use records.[7]

Section 7 prohibits passing foreign contribution to another person as an onward contribution. Paying staff or suppliers to carry out the recipient's own approved activity requires a different analysis. The Supreme Court distinguished the recipient's own utilisation, including necessary third-party services, from transferring the contribution to another organisation to undertake its programme.[8]

Administrative expenditure is generally capped at 20%, subject to prior approval for excess expenditure and the permitted carry-forward of unused administrative allowance into the following year. Annual Form FC-4 reporting remains necessary, including the activity report and applicable nil returns. The ordinary deadline is nine months after the financial year ends.[9]

Prior permission generally allows three years for receipt and four years for utilisation from approval, subject to the applicable transition or extension. Where government permits staged receipt under rule 9A for a contribution exceeding ₹1 crore, later instalments require Form FC-3BB, at least 75% utilisation of the previous instalment and the prescribed inquiry and approval. A contractual milestone alone cannot release them.[10]

If this company's activity or eligibility cannot support permission, the contribution should not be received. Routing it through another entity or issuing an invoice without a real service does not resolve that problem.

Payment for identifiable development services

FCRA excludes amounts received as fees or towards the cost of goods or services supplied in the recipient's ordinary business, trade or commerce. The agreement must support that exclusion through its actual obligations.[11]

A foundation can purchase development work that must be released under an open-source licence. Relevant evidence includes a defined technical scope, an obligation to deliver, acceptance criteria, an agreed price and remedies for non-performance. Exclusive IP ownership is not essential to a service arrangement. Conversely, a donor may require progress reports, budget compliance and recovery of misused funds while supporting the recipient's own programme. Those controls alone do not establish that services were purchased.

Where development services are genuinely bought, the parties should use a services agreement and a statement of work reflecting that bargain. The company should select an authorised dealer (AD) bank, confirm the permitted currency and receipt instructions, and retain invoices, delivery records, acceptance evidence and bank remittance records.

The Reserve Bank of India (RBI) export and import regulations took effect on 1 October 2026. They cover software within services and use the Export Declaration Form, or EDF. A service declaration is ordinarily due within 30 days after the invoice month's end. For software exported from the Domestic Tariff Area, the specified authority can be the authorised dealer or Software Technology Parks of India; Special Economic Zone exports use the Development Commissioner.[12]

The 2 November 2026 amendment, effective from 1 October 2026, provides a deemed-submission mechanism for a company's service inward remittance of up to ₹10 lakh or equivalent. The company supplies the required payment information to its authorised dealer for credit. This is a remittance-based concession, not a general exemption for every small software invoice. Larger receipts and other circumstances require the applicable EDF process.[13]

The company must realise and repatriate service export value within nine months of the invoice date, or twelve months where invoiced or settled in Indian rupees (INR), subject to an authorised extension. Advance and subsequent proceeds ordinarily pass through the same authorised dealer. The contract's payment and acceptance schedule must allow those deadlines to be met. The bank assesses the transaction and handles the prescribed export-monitoring entries; the company must provide the records and pursue overdue payments.[14]

The supported recommendation is therefore a genuine development-services contract, truthful export invoices and permitted fiat receipt through the authorised dealer. The service exclusion must remain supportable if the agreement's obligations or actual performance change.

Funding for investment rights

Where the foundation receives shares or financing rights, the parties must identify the instrument before accepting money. An entitlement to future tokens does not become an eligible equity instrument merely because it offers financial upside.

Equity shares and qualifying fully and mandatorily convertible instruments can fall under the Non-Debt Instruments Rules. The company must check its actual sector, entry route, foreign-investor eligibility and pricing. Ordinary software activity may qualify for automatic investment, but a Web3 business conducting regulated financial activities needs the corresponding sector analysis. The foundation's Cayman incorporation does not resolve beneficial-ownership or control restrictions involving countries sharing a land border with India.[15]

For an unlisted equity issue, the company needs the applicable valuation and corporate approvals, subscription documents and authorised capital. A preferential issue requires the relevant shareholder approval and registered-valuer process under company law, alongside pricing under the Foreign Exchange Management Act (FEMA) rules. Private-placement money must enter the prescribed separate bank account and cannot be used before allotment and filing the return of allotment.[16]

The company must issue the equity instruments within 60 days after receiving the consideration or refund within the following 15 days. It must report the issue in Form FC-GPR within 30 days of issue. A private-placement return of allotment is separately due within 15 days of allotment. Applicable annual foreign-liabilities-and-assets reporting is due by 15 July. These are different obligations; completing the foreign-investment filing does not replace the corporate return.[17]

An optionally convertible instrument or a loan requires a separate debt analysis. The February 2026 external commercial borrowing (ECB) rules require the parties to establish borrower and lender eligibility, permitted use, maturity and borrowing terms. For an ECB, the company selects an AD Category I bank and obtains a loan registration number before drawdown. The prescribed ECB reports follow; the relevant ECB2 period uses seven calendar days after month-end.[18]

A qualifying startup convertible note has its own conditions: eligible startup status, at least ₹25 lakh from the investor in a single tranche, and conversion or repayment within ten years. Form CN reporting is required within 30 days of issue. A document called a simple agreement for future equity (SAFE) or simple agreement for future tokens (SAFT) does not establish those conditions.[19]

The investment recommendation is to close the identified permitted instrument with its approvals, valuation, bank route and filings. Any separate promise of tokens needs its own classification by the rights it creates. Until that route is established, it should not be treated as cleared investment consideration. A genuine investment also does not shelter a separate donative component from FCRA analysis.[20]

Stablecoins and native tokens

A dollar peg does not establish that a stablecoin payment is foreign currency received through an authorised channel. A native token raises the same receipt question, together with valuation, liquidity and entitlement issues. On the facts described, neither direct wallet method establishes satisfaction of the applicable FCRA, export-payment or investment-receipt conditions.[21]

FCRA expressly contemplates certain non-cash contributions, so its bank-account rules should not be turned into a claim that every asset transfer is legally impossible. The particular token's classification, permission and reporting treatment still need to be established. A company cannot assume that accepting tokens first and later selling them for INR supplies the missing receipt route.

The foundation should make any lawful treasury conversion on its side and remit fiat as the genuine donor, customer or investor. The payment must reach the account required for that transaction. The parties should preserve the source-of-funds evidence and reconcile the bank receipt to the agreement.

If they want token settlement, they must resolve the token's rights, sender and recipient, wallet control, conversion location, permitted settlement mechanism and documentary proof before agreeing that wallet delivery discharges payment. A bank's operational confirmation cannot create a permission absent from the applicable law. Tax reporting also does not supply that permission.

Income tax and goods and services tax follow the actual transaction

For the prospective arrangement, the Income-tax Act 2025 applies from 1 April 2026. Earlier tax years remain subject to the relevant savings provisions. Development fees ordinarily enter business income. Programme support connected with the company's business may also be taxable as a business benefit, including cash or kind. Residual gratuitous receipts require the section 92 analysis and its specific exceptions. FCRA permission and the donor's foundation status establish no general income-tax exemption.[22]

Goods and services tax (GST) requires a separate supply analysis. Consideration can come from someone other than the recipient, so public access to the resulting code does not prevent a paid supply. Genuine support without a reciprocal supply may fall outside the ordinary consideration-based charge, while the rules for specified supplies without consideration, including related-person supplies, must still be checked.[23]

Export zero-rating requires all statutory conditions: the supplier is in India, the recipient is outside India, the place of supply is outside India, payment is received in convertible foreign exchange or RBI-permitted INR, and the parties are not merely establishments of the same person. A foreign payer alone is insufficient. For ordinary cross-border development, the general recipient-location rule is the starting point, subject to the applicable exceptions. The former special intermediary rule in section 13(8)(b) was omitted from 30 March 2026.[24]

The company and GST adviser should establish the actual recipient and place of supply, registration and invoice treatment, and any bond or letter of undertaking (LUT) route before export. For services under an LUT, the realisation period is the later of one year or the FEMA period, including RBI extensions, subject to further permitted extension. Failure can trigger tax and interest. Token-only settlement does not establish the export payment condition.[25]

Token receipt for work, a later token disposal and withholding are separate questions. The 30% virtual digital asset (VDA) rule concerns income from transfer, with applicable surcharge and cess, restricted deductions and loss treatment. It is not a blanket tax on every token receipt. The 1% withholding rule concerns consideration paid or credited to a resident for a VDA transfer, subject to statutory conditions and thresholds. The parties must identify each transaction leg and fund any in-kind withholding obligation.[26]

The crypto reporting rules of the Income-tax Rules 2026 apply to defined reporting service providers. Merely receiving funding into the company's wallet does not by itself establish that status; operating an exchange service or trading platform requires separate assessment. Tax records should preserve token identity, quantities, entitlement and transfer dates, valuation evidence, acquisition cost, counterparties and wallet transactions.[27]

The Cayman approval and the agreement

The foundation's board and advisers should obtain its operative memorandum, articles, relevant bylaws and treasury restrictions. They must identify who can approve this grant, service purchase or investment, and establish that the decision complies with the applicable objects, powers, conflict procedures and solvency requirements. The Foundation Companies Act's model constitution is not evidence of the foundation's adopted terms.[28]

If a founder is connected with the developer, the approval record should disclose the relationship and establish the authorised decision-making process. The statutory restriction on distributions to members as such is not a blanket prohibition on every related-party transaction. Equally, the relationship does not authorise use of restricted funds. Secretary no-objection under section 17 concerns contributions received by the foundation; it is not a general statutory clearance for every outbound grant.[29]

The agreement should then change in six places:

1. State the actual programme, purchased work or investment instrument, with the corresponding conditions before payment.
2. For services, define deliverables, acceptance, change control and price. For programme support, define permitted use and monitoring without inventing a purchased service.
3. Specify IP ownership, the open-source licence, publication obligations and any support commitments. Identify whether these are paid obligations or conditions attached to programme funding.
4. Match each payment to the lawful account, currency, invoice or permission and supporting evidence. Allocate responsibility for declarations and filings.
5. Define suspension, termination, unspent-fund recovery and remedies for misuse or non-performance. Require any refund to follow applicable Indian permissions and banking procedures.
6. Allocate tax, valuation and withholding responsibilities and require reassessment before changing the payment asset, recipient, project or investment rights.

These are proposed contract controls. The foundation's statutory solvency restriction does not itself create a general contractual right to reclaim a grant. Recovery and suspension need a stated legal and contractual basis.[30] The discussion of treasury spending and grant terms in purpose-trust arrangements provides related drafting background; the Cayman foundation's own law and documents govern its approval.

Before release, the company, foundation and advisers should assemble one closing file: the agreed classification, signed terms, corporate approvals, required permissions, bank instructions and reporting calendar. The tax handover should identify the receipt and accrual dates, actual recipient, related-party relationships and any token rights. Those records allow Web3 legal due diligence to test the transaction that will actually occur.

Plan the funding review

Contact Licentium to review a cross-border foundation funding agreement and its Indian receipt conditions before disbursement.

Notes

1. Foreign Contribution (Regulation) Act 2010, ss 2(1)(h), Explanation 3, 11–12; Foreign Exchange Management (Non-Debt Instruments) Rules 2019, rr 2(k), 3–6, 18, 21; Foreign Exchange Management (Borrowing and Lending) Regulations 2018, reg 3 and Sch I, as amended in 2026.
2. Foreign Exchange Management (Manner of Receipt and Payment) Regulations 2023, reg 3; FCRA, s 17; Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations 2019, reg 3.1.
3. FCRA, ss 2(1)(a), (h), (j)(viii), (m), 3, 11–12.
4. FCRA, ss 11–12; MHA, FCRA FAQs, 4 October 2022, Part III.A, Q5.
5. Foreign Contribution (Regulation) Rules 2011, rr 9(1B), 17B and Schedule, as amended by S.O. 3272(E), 22 June 2026.
6. FCRA, ss 11(2), 12(4); FCR Rules, r 9 and Form FC-3B, as amended by G.S.R. 342(E), 26 May 2025, and S.O. 3272(E), 22 June 2026.
7. FCRA, ss 11–12, 17–19; FCR Rules, rr 9, 17 and Forms FC-3A, FC-3B.
8. FCRA, s 7; Noel Harper v Union of India, W.P. (C) 566/2021 and connected petitions, Supreme Court, 8 April 2022, original judgment paras 43–47.
9. FCRA, s 8; FCR Rules, rr 5, 9A, 17 and Form FC-4, read with G.S.R. 790(E), 31 December 2024, effective 1 January 2025, and S.O. 3272(E), 22 June 2026; MHA direction under s 46, 7 April 2025, paras 2–5.
10. FCRA, s 8; FCR Rules, rr 5, 9A, 17 and Form FC-4, read with G.S.R. 790(E), 31 December 2024, effective 1 January 2025, and S.O. 3272(E), 22 June 2026; MHA direction under s 46, 7 April 2025, paras 2–5.
11. FCRA, s 2(1)(h), Explanation 3.
12. Foreign Exchange Management (Export and Import of Goods and Services) Regulations 2026, regs 1–3; RBI A.P. (DIR Series) Circular No. 20, 16 January 2026.
13. Export and Import Regulations 2026, reg 3(2)(b), as amended by FEMA 23(R)/(2)/2026-RB, 2 November 2026, effective 1 October 2026.
14. Export and Import Regulations 2026, regs 4–5, 10(1), 18–19, read with FEMA 23(R)/(1)/2026-RB, 22 September 2026.
15. Non-Debt Instruments Rules 2019, rr 2(k), 6(a), 21 and Sch I, para 3(b)(iii), entry F.10, as amended through 2 September 2026.
16. Companies Act 2013, ss 42, 62(1)(c); Non-Debt Instruments Rules 2019, r 21.
17. Mode of Payment and Reporting of Non-Debt Instruments Regulations 2019, reg 3.1, Sch I(A), reg 4(1)–(2); Companies Act 2013, s 42(4), (6), (8).
18. Borrowing and Lending Regulations 2018, regs 3, 3A, 4B, 6B and Sch I, especially paras 10, 16, as amended by FEMA 3(R)(5)/2026-RB, 9 February 2026, published 16 February 2026.
19. Non-Debt Instruments Rules 2019, rr 2(e), 2(an), 18; Mode of Payment and Reporting of Non-Debt Instruments Regulations 2019, regs 3.2, 4(12).
20. FCRA, s 2(1)(h); Noel Harper, original judgment paras 27, 53; Non-Debt Instruments Rules 2019, rr 2(k), 3–6, 18.
21. Manner of Receipt and Payment Regulations 2023, reg 3; Export and Import Regulations 2026, regs 4–5; Mode of Payment and Reporting of Non-Debt Instruments Regulations 2019, reg 3; FCRA, ss 2(1)(h), 11, 17.
22. Income-tax Act 2025, ss 1(3), 26(2)(a), (f), 92(2)(m), (3), 536.
23. Central Goods and Services Tax Act 2017, ss 2(31), 2(93), 7 and Sch I, para 2.
24. Integrated Goods and Services Tax Act 2017, ss 2(6), 13, 16; Finance Act 2026, ss 1(2), 157; General Clauses Act 1897, s 5(1)(b); CBIC Circular 161/17/2021-GST, paras 4.4, 5.1–5.2.
25. CGST Rules 2017, r 96A(1), as amended by Notification 12/2024 – Central Tax, 10 July 2024, r 20; CBIC Circular 263/09/2026-GST, 26 October 2026, paras 2.2–2.4; IGST Act, s 2(6)(iv).
26. Income-tax Act 2025, ss 2(111), 26, 92, 194(1), Table 4, 194(2)(n), 393(1), Table 8(vi), 393(4), Table 12.
27. Income-tax Act 2025, s 509; Income-tax Rules 2026, rr 241–244.
28. Foundation Companies Act (2025 Revision), ss 3(2), 4, 6–7, 12, 15; Companies Act (2026 Revision), ss 27–28.
29. Foundation Companies Act (2025 Revision), ss 4(1)(b)(iv), 4(2), 7, 12, 16–17.
30. Foundation Companies Act (2025 Revision), s 15.