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Government mandates companies and crypto-exchanges to disclose crypto transactions

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

Rishi Anand, Partner, DSK Legal said that the government has now sought disclosure by all companies of their holdings and earning in crypto and virtual currencies. Each such company now has to disclose the profit or loss on such transactions, amount of such currency held, and advances received for trading/investing in such currencies.

With this requirement for disclosure, it appears that government recognizes that crypto or virtual currencies form an asset block in the books of a few companies. Given the uncertainty around RBI’s and central government’s outlook towards cryptocurrencies, this is an interesting amendment which allows the government to at least monitor the exposure of India Inc. in crypto and virtual currencies.”—Rishi Anand, Partner, DSK Legal

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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Reports on banking, payments, fintech and crypto-curencies. Additional reporting on media regulations, data protection and other areas.

MediaNama’s mission is to help build a digital ecosystem which is open, fair, global and competitive.



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