(ATF) Despite its struggle to take a stand in regard to the crypto sector, India tweaked its corporate disclosure norms on cryptocurrency investments on Thursday indicating, say experts, that the government may not ban private cryptocurrencies after all.
In February, India unveiled a set of new draft rules - the Cryptocurrency and Regulation of Official Digital Currency Bill 2021 - that also sought to prohibit all private cryptocurrencies in India. The Bill though, is still under discussion and has not been turned into law yet.
The Ministry of Corporate Affairs (MCA) has now made amendments to rules in the Companies Act, making it mandatory for companies to disclose the profit or loss on transactions involving cryptocurrency or virtual currency.
Companies have now been asked to disclose in their annual financial statements the amount of cryptocurrency held as on reporting date. Also, companies have to now disclose in their financial statements the details of deposits or advances taken from any person for trading or investing in crypto/virtual currency, the MCA said.
The move comes even as the Government and the Reserve Bank of India – the central bank - are in active consultation to firm up a framework for regulating cryptocurrencies, introducing a sovereign digital currency, and even banning private cryptos.
“The fact is that the government is doing some sort of data collection, and once they collect the data, they may reach to a conclusion that it should not be banned. All those who will disclose would have either paid or would have to pay taxes so that would also give the government an idea of the amount of tax revenue that could be collected,” Ajeet Khurana, founder of Genezis Network, a thinktank for crypto-start-ups, told Asia Times Financial.
Staring April 1 - the next financial year - companies and businesses, according to the diktat, have to disclose cryptocurrencies in which they had traded; profit and losses in such trades and deposits or advances taken from other persons in these currencies.
“The reality is, there is no definite data on the number of investors and the amount of money invested in cryptocurrency yet. Therefore, I think, this order was passed as a fact-finding exercise as well,” Khurana added.
The government has undoubtedly struggled to get a grip on the sector and to take a stand ever since digital currencies gained popularity back in 2017.
Initially, it was opposed to them, while the RBI in 2018, even banned banks from dealing in cryptocurrencies, because of concern over their use for funding terrorists, plus money laundering and other illegal activity.
That was a brief episode though as the Supreme Court lifted the RBI ban in March 2020, giving cryptocurrencies in India a second chance.
Since then, according to experts, India has supposedly seen “tremendous interest in cryptocurrency,” with ten million Indians owning digital assets including cryptocurrencies worth over $2 billion dollars.
“But those numbers are just estimates; no one has the real numbers so now that the government wants businesses to disclose signifies a leaning towards unravelling the sector rather than banning some cryptocurrencies upfront,” Amit Maheshwari, a cryptocurrency expert and a partner at AKM Global, told ATF.
Experts say the government should ensure transparency about the magnitude and how much money is involved if businesses are indulging in cryptocurrency trading, as there have been allegations about some luring investors with promises of high returns by investing in cryptocurrencies and there were also instances of people losing money.
“The MCA notification tells us that the Government is seeking to increase oversight of the sector which should be seen as a positive move in my view. Transparency helps all stakeholders. Now there will be clear data on the amount of corporate holding of cryptocurrencies. If this is followed with an express clarification under income tax laws as well, that will help stakeholders plan their affairs better,” Jaideep Reddy, a technology lawyer at Nishith Desai Associates told ATF.
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