Govt asks companies to disclose crypto transactions and holdings

Govt asks companies to disclose crypto transactions and holdings

In a first, the ministry of corporate affairs 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.

According to the latest amendments to the Schedule III of the Companies Act, 2013, the companies have to disclose profit or loss on transactions involving cryptocurrency or virtual currency, amount of holding and details of deposits or advances from any person for the purpose of trading or investing in cryptocurrency or virtual currency. The latest requirements will be applicable from the upcoming financial year.

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“The intent seems to include and regulate cryptocurrencies. While the authorities are preparing a regulatory framework, they are looking for information on how many companies are doing cryptocurrency trading or are holding them on their balance sheets," said Pallav Narang, partner at CNK RK & Co Chartered Accountants.

While there are estimated to be around one crore individual crypto investors in India, 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 around crypto regulation in India. It is important to note that Indians have already invested around $1.5 billion into 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 Narang.

Meanwhile, the government on its part is in the process of bringing in a Bill on cryptocurrencies. While the contents of the Bill are not yet known, the Centre in February had said that the Bill would seek to ban all private cryptocurrencies such as bitcoin and ether. However, in the recent past, it had hinted that it would take a calibrated approach towards digital assets.

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India Mandates Public and Private Firms to Disclose Crypto Holdings

Indian companies have to disclose their cryptocurrency dealings from the next financial year, which will begin on April 1.

The country’s Ministry of Corporate Affairs amended Schedule III of the Companies Act, 2013 on Thursday to mandate both public and private companies to disclose their cryptocurrency holdings and other activities using digital currencies.

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According to the published gazette, the companies must disclose ‘profit or loss on transactions involving Cryptocurrency or Virtual Currency’, ‘amount of currency held as at the reporting date’, and ‘deposits or advances from any person for the purpose of trading or investing in cryptocurrency/ virtual currency’.

The companies have to report these crypto dealings in both their profit and loss statements and balance sheets.

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Though none of the Indian companies has revealed any cryptocurrency investments yet, many public companies in the United States and Europe have invested heavily in digital currencies, which might have prompted the Indian ministry to bring such reporting laws.

However, it will be interesting to see if the existing Indian cryptocurrency exchanges have made any digital currency investments. US-based Coinbase, which is heading towards a public listing, revealed that it added Bitcoin to its balance sheet in 2012.

Confusions Around Crypto

Last month, the Indian securities market regulator informally directed initial public offering (IPO) promoters to liquidate their cryptocurrency investments.

India’s new crypto disclosure rule came when the country is possibly heading towards a crypto ban. Though the government already drafted a bill and was about to debate it in the recent parliament session, it was not tabled while the session saw an early closure today.

Companies and crypto-exchanges to disclose crypto transactions this year

The Ministry of Corporate Affairs has amended the Companies Act, 2013 mandating companies to disclose their crypto or virual currency holdings and transactions as part of their annual financial statements for this fiscal. While crypto-currencies are an unregulated industry in India, this move marks the first step towards the government recognising the digital assets as part of law.

Companies that have traded or invested in crypto-currencies during the financial year will need to disclose their profits or losses from crypto-currency transactions, the amount of crypto-currencies held at the time of reporting their finances and the quantum of deposits or advances the company receives from any person for the purpose of trading or investing in crypto-currencies. This means that crypto-currency exchanges would need to disclose the total amount of funds their investors have parked with them over the last year.

The amendment was made under Schedule III of the Companies Act, under the section mandating specific financial transaction disclosures as part of the Profit and Loss Statement. Companies that receive funds from persons or entities in order to directly or indirectly lend or invest the funds towards persons or entities on behalf of the funding party or companies that provide any guarantee, security or the like on behalf of the funding party are mandated to include these disclosures.

In January, the government announced that it would introduce The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which will ban “private” crypto-currencies while at the same time providing the Reserve Bank of India (RBI) with the requisite legal powers to develop a central bank-backed digital currency (CBDC), according to an official Lok Sabha Bulletin Part II for the Budget Session 2021 of Parliament.

Since then the Finance Minister Nirmala Sitharaman has said that the government’s proposed cyrpto-currency legislation will adopt a calibrated approach in order to allow innovation and experimentation in the space, even if there is a national digital currency. MediaNama reported that the government could give investors a three-six month window to square their crypto-currency holdings under the proposed law.

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Regulations still unclear, but step in the right direction: Experts

“The amended schedule will come into force on April 1, 2021 but will require to be approved by Parliament in accordance with section 476(3) [of the Companies Act],” said Avimukt Dar, Partner, IndusLaw. While there is time for companies to file their financial statements for the current financial year, in addition to auditing, the precise policy posture of the government of what to do with so the called private virtual currencies is still not clear, he said.

“This reporting exercise, which will need sign off by external auditors as well, can be a prelude possible investigations and penalties as there is as yet no clarity from the government as to what ‘calibrated regulation’ means other than a mysterious agenda item in the January Lok Sabha agenda and media reports indicating that the government wants to give time for stakeholders to unwind their positions in crypto” — Avimukt Dar, Partner, IndusLaw

According to Shivam Thakral, chief executive officer of BuyUcoin, this a major step towards regulating the crypto assets in India and will bring in lot of transparency in reporting/filing of crypto investments.”The move will boost institutional adoption of crypto assets in India and will take Indian crypto industry to the next phase of growth,” he said.

“We are eagerly waiting for positive regulatory guidelines from the Finance Ministry and RBI for more clarity around crypto regulation in India, it is important to note that Indians have already invested around $1.5 billion into crypto assets which clearly shows their intent towards embracing digital assets“—Shivam Thakral, CEO, BuyUcoin

Monark Modi, founder and CEO of Bitex, said that this a positive sign from the Indian government that there is growing acceptance of crypto-currencies as an investment asset.”In light of the recent speculation around banning, allowing cryptocurrencies to be a part of accounting practices will definitely put investors at ease as they no longer have to be worried regarding taxation,” he said.

“Bringing regulation that provides safety to investors, factors taxation and fosters crypto-currency as an alternate investment class will be the right step ahead”—Monark Modi, founder and CEO, Bitex.

MediaNama has prepared a guide on crypto-currency regulations in India, listing the government’s position over the last few years and various policy recommendations; read it here: A complete low-down on crypto-currency regulation in India.

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