UPI-to-USDC Remittances: A Crypto Shortcut That Is Testing India’s Rulebook

India is the world’s top destination for foreign remittances. The World Bank’s latest Migration & Development Brief shows inflows touched US $129 billion in 2024. Much of that money arrives from Gulf states—especially the United Arab Emirates—through traditional money-transfer operators. In the March-quarter of 2025, sending a US $200 payment from the UAE to India via licensed channels cost an average 3.45 % once fees and foreign-exchange mark-ups were added.

Over the past year, however, migrant workers and small over-the-counter (OTC) brokers have begun routing part of this flow through a four-step crypto loop:

1. Dirhams to USDC on an exchange such as BitOasis.

2. Token transfer (usually on the low-fee Tron network) to a broker wallet in India.

3. Local liquidation of USDC for rupees on a domestic exchange that still enjoys bank access—often via a non-bank finance company (NBFC).

4. Instant payout to the final recipient through India’s IMPS/UPI rails.

Public fee tables at BitOasis and two other UAE exchanges show spreads near 0.3 % for the first hop, while Tron network fees are negligible. Brokers interviewed by The Economic Times (20 May 2025) quote a further 0.6–1 % to convert and distribute rupees via UPI. Taken together, the crypto route often lands below 2 %—less than two-thirds of the traditional corridor’s cost—though no audited nationwide average exists.

A Blind Spot in Existing Rules

• Foreign-exchange law. India’s Foreign Exchange Management Act (FEMA) does not mention stable-coins. Because the outward leg is settled in tokens, it never passes through an authorised-dealer bank or generates a Form A2 declaration.

• Income-tax treatment. Section 194S of the Finance Act 2022 imposes a 1 % tax deducted at source (TDS) on gains from “virtual digital assets.” When a remitter buys and sells USDC at par, brokers argue no “gain” arises, so no TDS is triggered.

• Anti-money-laundering risk. The Enforcement Directorate (ED) has begun taking notice. A November 2024 press release details the freezing of balances in 92 bank accounts worth ?5.67 crore tied to crypto-funded betting rings. In May 2025 the agency also seized ?6.3 crore in cash from hawala operators who admitted converting proceeds into USDT before off-ramping in India. While these cases were not purely remittance-driven, they show regulators tracing crypto routes into domestic payments.

What Is at Stake

• Household impact. On a US $6 000 annual remittance, shifting from a 3.45 % fee to a sub-2 % crypto route can save a migrant family more than ?8 000 a year—roughly one month of food expenses in many Indian cities.

• Data opacity. If even five per cent of 2024’s inflow (?US $6 billion) moves through unreported stable-coin channels, the RBI loses line-of-sight over a volume larger than the net foreign portfolio investment of some quarters.

• Systemic risk. A sudden banking-channel shutdown—for example, if an NBFC’s partner bank terminates service—could freeze thousands of pending payouts without legal recourse.

Policy Options Under Discussion

Although no circular has yet been published, Reserve Bank officials have said publicly that crypto-denominated outward transfers are under review for the current fiscal year. Based on precedents in other jurisdictions, three main avenues are available:

1. Clarify and License. Amend FEMA so any stable-coin transfer destined for India must flow through authorised dealers, with the same KYC and limits that apply to conventional remittances.

2. Monitor and Flag. Issue guidance requiring banks and payment gateways to flag UPI credits linked to known high-volume stable-coin liquidation accounts.

3. Provide a Compliant Alternative. Accelerate pilots such as the BIS-led mBridge cross-border CBDC project, or enable a tightly supervised e-rupee corridor, to match crypto-level costs while preserving transaction visibility.

Outlook

For now, the USDC-to-UPI shortcut remains a legal grey zone: not expressly prohibited, yet clearly outside the framework that governs the US $129 billion remittance economy. Its appeal—lower fees and near-real-time settlement—is undeniable. Whether the RBI chooses to embrace, compete with, or shut down the practice will determine how much of the world’s largest remittance flow migrates permanently to private, dollar-linked blockchains.

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