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Startups On Mandatory Crypto Disclosures

Companies would have to disclose their investments in cryptocurrencies and other virtual assets as well as any profit or loss from such crypto transactions

The amendment comes days after finance minister Nirmala Sitharaman said that India will not shut all options for crypto trade or investments

Of late, there has been speculation about the Indian government looking to ban mining, trading and holding of private cryptocurrencies

India’s Ministry of Corporate Affairs (MCA) now requires companies registered in the country to make disclosures about their investments in cryptocurrencies and other virtual assets, the amount of currency held as at the reporting date, as well as any profit or loss arising from transactions or investments involving cryptocurrencies. 

The MCA mandated the disclosures through an amendment in Schedule III of the Companies Act, 2013 that prescribes the format of the balance sheet that must be prepared by almost all companies. The amendment comes just days after finance minister Nirmala Sitharaman assured all crypto stakeholders that in its regulation for the sector, India will not shut all options and will leave a window open for experiments in the crypto space. 

Welcoming the amendment, Sumit Gupta, cofounder and CEO of Mumbai-based crypto exchange CoinDCX, said, “It is a great stride towards a regulated environment which is what the industry has been eagerly anticipating. Besides ushering in transparency for the system it will enhance the confidence of investors both retail and institutional especially in the wake of ongoing speculations around the cryptocurrency bill.” 

Of late, there have been speculations about the Indian government planning to ban the mining, trading and holding of all private cryptocurrencies i.e. those not owned by the state. The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, talks about banning all private cryptocurrencies and the introduction of a framework for a Central Bank Digital Currency or CBDC.

While the fine-print of India’s crypto bill is not yet known, various source-based media reports since February had claimed that the bill would completely outlaw cryptocurrencies in India. The bill was expected to be tabled during the budget session of the Parliament, a truncated one that ran from February to March. However, the session was adjourned this week on Thursday with the crypto bill yet to be tabled. 

Some media reports had claimed that the bill would be brought in as an ordinance, which can happen only when Parliament is not in session. 

Talking about the MCA amendment, Kumar Gaurav, founder and CEO of London-based crypto-friendly neobank Cashaa told Inc42: “With this move, the government has ensured, that in a global scenario wherein giants like Tesla and Paypal are actively participating in the crypto domain, the Indian companies are not falling back. Also, further to this, all the trading volumes by Indian companies go into accounts, which are huge,” 

It is worth mentioning that in India, crypto companies and other stakeholders have maintained that they are not seeking the regulation of crypto as a legal tender, but as an investment asset class, similar to mutual funds and gold. Considering that Bitcoin’s price appreciated over 160% last year, and continues to grow every week, the arguments from the industry that Bitcoin, Ethereum and other cryptocurrencies are sound investment options are gaining more ground. 

The Question Of Taxing Cryptocurrencies

Several industry players have talked about the benefits that the government can derive in terms of GST and income tax, by choosing to regulate instead of banning crypto. Parag Mehta, a partner at law firm NA Shah Associates, said tax implications on crypto gains would arise from whether they are treated as income or assets. It is understood that RBI doesn’t treat cryptocurrencies as legal tender. 

“Therefore, for the purpose of income tax it will be regarded as property and tax implication will be similar if one is holding or dealing in any other property. In other words, the profit or gains arising from cryptocurrencies either can be taxed as business profit if the same is acquired with the intention to make a profit by trading/mining or a capital gain if the same is acquired with the intention to create wealth,” he told Inc42

As far as GST or goods and services tax on cryptocurrencies is concerned, in December last year, there was a proposal to levy 18% GST on crypto transactions, one that had alarmed founders of crypto exchanges.  Currently, Indian crypto exchanges pay GST on the fees and commissions levied by them on crypto trading. 

“GST will surely be levied on the transaction charges, brokerage etc. However, if the basic consideration is made liable to GST at 18% the entire business will shift outside India. If it cannot be removed from the ambit of GST, it should be treated at par with high-value assets like gold, silver and diamonds where there are lower rates of GST i.e 0.25 % onwards,” Mehta explained. 

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