India is one of those countries where earning money is frowned upon. Doing business involves fulfilling a lot of regulations and procedures. Most small business in India aren't savvy enough to hire a corporate lawyer or a team for this. So obviously, they look for ways around regulations. This is one reason that GST has been a back breaker for a lot of small businesses.
Handling Forex is one of these things. It is kindda illegal to possess an international currency if you cannot declare a source for it. The same i suppose stands true for the bitcoin exchanges that don't have base in India.
Such communications are bad news for those delving into BTC trading. The part of the communication that says
remittance in any form towards overseas exchange trading through internet/ electronic trading portals is not permitted.
Indian residents are therefore prohibited from trading in foreign exchange in domestic and overseas market, including binary option trading with commodities, stocks, indices, bitcoin index and forex etc.
If you have withdrawn INR generated from one of the Indian websites by selling BTC, that shouldn't really be taken in the category of "remittances". But they are talking about remittances towards overseas exchanges. That means if you are trading on foreign exchanges in any way, then that is not permitted.
Though it begs the question that how do they assume that you are trading and making "remittances towards foreign exchange"??
Friend got a similar message from the bank. He was using credit card to make USD payments to cex.io. so that qualifies as a remittance - and is against the rules of the bank and FEMA.
As for other FUD spready here - you won't go to prison for this as FEMA is a civil offence only and going after small amounts (<5 lakh) is not worth the RBI or ED's administrative resources.