Govt seeks disclosure of crypto transactions, holdings

Govt seeks disclosure of crypto transactions, holdings

In a first, the ministry of corporate affairs (MCA) has asked all companies in the country to mandatorily disclose any dealings in cryptocurrency or virtual currency in their balance sheets. This is a major step towards regulating crypto assets in India and is expected to bring in a lot of transparency in reporting or filing of crypto investments.

The companies have to disclose profit or loss on transactions involving cryptocurrency or virtual currency, the amount of holding, and details of deposits or advances from any person for the purpose of trading or investing in cryptocurrency or virtual currency, according to the latest amendments to the Schedule III of the Companies Act, 2013. This will be applicable from the upcoming financia lyear, MCA said in a notification on Wednesday.

“From regulation to a complete ban, there are many competing theories as to what the actual legislation will be. Keeping that narrative in mind, the fact that the government has asked for disclosures, it may look to perhaps regulate rather than ban cryptocurrencies. But these are still early days and the most important piece of regulation is still to come," said G.V. Anand Bhushan, partner, Shardul Amarchand Mangaldas.

There are estimated to be around 10 million individual crypto investors in India, but the number of companies having exposure to this avenue is not known.

“The government’s move is expected to boost institutional adoption of crypto assets. We are eagerly waiting for positive regulatory guidelines from the finance ministry and the Reserve Bank of India for more clarity on crypto regulation in India. Indians have already invested around $1.5 billion in crypto assets, which clearly shows their intent towards embracing digital assets," said Shivam Thakral, chief executive officer, BuyUcoin, a cryptocurrency exchange.

Globally, major companies such as Tesla and MicroStrategy have been holding big amounts of bitcoin on their balance sheets.

Despite the MCA making it official for companies to hold and report crypto assets in their books, experts feel that there is still a disparity on how these assets will be taxed.

“Whether it is going to be taxed as business income, capital gains or speculative income, it is still to be tested. But it is certain that this information will be mined by the income tax authorities to verify whether people have paid taxes on this particular income or not," said Pallav Narang, partner at CNK RK & Co. Chartered Accountants. “The government’s intent seems to include and regulate cryptocurrencies," he added.

Meanwhile, the government is in the process of bringing in a bill on cryptocurrencies. The contents of the bill are not yet known, but the Centre has said in February that the bill would seek to ban all private cryptocurrencies such as bitcoin and ether. However, recently it had hinted that it would take a calibrated approach towards digital assets.

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Coinbase to Open India Branch Even as Potential Ban on Crypto Looms

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Good News For Crypto Startups? Coinbase Hiring In India; Govt Seeks Cryptocurrency Disclosures From Companies

While the Indian government is yet to clear the air around its stance on cryptocurrency, the crypto industry is still optimistic about there being no official ban on crypto trading and investments in the country. One of the world’s leading cryptocurrency exchanges Coinbase is looking to set up shop in India, while in an unrelated matter, the government has mandated that companies disclose their cryptocurrency investments in annual filings. Both these developments have given crypto startups and investors hope that a complete ban may not be on the cards for cryptocurrencies in India.

“By housing some IT services, including engineering, software development and customer support operations in India, we will benefit from its huge pool of world-class engineering talent,” Coinbase wrote in a blog post. While the company is starting with remote-first operations, it intends to open an office in Hyderabad and possibly other locations for Indian employees as and when the situation around Covid improves.

Coinbase, which was founded in 2012, is currently in the process of listing itself in US exchanges. The exchange supports cryptocurrencies like Bitcoins and Ethereum, and claims to have over 43 Mn users. The company has also posted job openings on LinkedIn to hire for positions ranging from backend engineers, engineering managers, staff software engineers to product managers.

Interestingly, Coinbase’s job vacancies for India have gone live on the very day that the ministry of corporate affairs (MCA) asked registered companies in India to disclose any investments or trades in cryptocurrency or virtual currency in their balance sheets in the mandatory annual filings. While the purpose of this disclosure is not yet clear, the industry sees this as a positive step towards regulating cryptocurrencies rather than banning them.

Registered companies have to disclose profit or loss on transactions involving cryptocurrency or virtual currency, the amount of holding, and details of deposits or advances from any person for the purpose of trading or investing in cryptocurrency or virtual currency, as per the changes to the filing requirements in the the Schedule III of the Companies Act, 2013, an MCA notification said. The new rules will be applicable from the next financial year i.e FY 2021-22, ending March 31, 2022.

No Clarity On Crypto Future In India

While the disclosure requirement could be seen as a step in the positive direction, it also does not clear the path for the regulation of cryptocurrencies, given the flip-flops from official sources on the matter. After finance minister Nirmala Sitharaman had said earlier this month that the government would allow experiments in crypto, reports this week suggest India is looking to block the IP addresses of cryptocurrency exchanges to clamp down on trading. This was in line with the contents of the official bill governing this rapidly-growing financial services sector.

In January, the Cryptocurrency and Regulation of Official Digital Currency Bill, 202 1, was listed in the Lok Sabha bulletin. The bill has been slated for discussion and passing during the ongoing budget session of Parliament. The synopsis of the bill reads: “To create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India. The bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.”

But Sitharaman had looked to clear the confusion in March saying that the government is holding talks with the Reserve Bank of India and will take a very calibrated position on the matter. She added that as the world moves fast with technology, India can’t look the other way. The FM reiterated this stance a few days later. “We want to make sure there is a window available for all kinds of experiments which will have to take place in the crypto world. It is not as if we are going to look inwards and say we are not going to have any of this. There will be a very calibrated position,” she had said at the time.

With Coinbase and other cryptocurrency startups expanding rapidly in the Indian market, could there be a glimmer of hope for India’s crypto industry?