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Govt tells companies to disclose cryptocurrency trading; industry welcomes move

The Ministry of Corporate Affairs (MCA) has made it mandatory for companies to disclose crypto trading/investments during the financial year. Experts see it as a positive step and expect the taxation rules to follow through

twitter-logoAprajita Sharma | March 26, 2021 | Updated 13:40 IST
Govt tells companies to disclose cryptocurrency trading; industry welcomes move

After dilly-dallying over legalising or banning cryptocurrencies, the Indian government has finally taken an encouraging step towards regulating digital currencies. The Ministry of Corporate Affairs (MCA) has made it mandatory for companies to disclose crypto trading/investments during the financial year. Experts see it as a positive step and expect the taxation rules to follow through.

 "In light of the recent speculation around ban, 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. This is a definite endorsement, and it is good to see that India is not falling behind the global cryptocurrency race. Bringing regulation that provides safety to investors, factors taxation and fosters cryptocurrency as an alternate investment class will be the right step ahead," says Monark Modi, Founder and CEO, Bitex, a global cryptocurrency exchange.

Curbing black money

The accounting of crypto assets will help curb illegal activities and circulation of black money via cryptos. "We are living in an era of enhanced KYC norms and monitoring of financial transactions. That being said, considering cryptocurrencies are in a regulatory flux at the moment and are at times associated with illegal activities such as tax evasion and money laundering, it is only understandable that the government wishes to have visibility on a company's cryptocurrency dealings," says GV Anand Bhushan, Partner at Shardul Amarchand Mangaldas & Co.

Improving corporate governance

It will also improve the corporate governance with more transparent disclosures. "From an organisational perspective,  the notification being proposed by the MCA will improve disclosure requirements, usher in more transparency, thereby improving the overall corporate governance architecture of an organisation, while enabling the governmental authorities to monitor  cryptocurrency dealings being undertaken by corporations, at the same time. The said notification is, thus, a predictable outcome considering the government's past regulatory responses in this regard," says Bhushan of Shardul Amarchand Mangaldas.

Additionally, the companies will have to find ways to value their crypto assets and disclose all transactions as per regulations. "Companies and other stakeholders will have to deal with the challenges of valuation, identification, nature and completeness of transactions and their disclosures," says Khazat Kotwal, Partner, Deloitte India.

Expected taxation rules

Cryptocurrency transactions are taxable in India in cases where the person earning such gains is an Indian tax resident or where the crypto is said to be domiciled in India.

Talking about how such income should be taxed, Ritesh Kumar S, Executive Director, IndusLaw says: The popular approach on this is to tax the gains as being "Capital Gains"; this is premised on the assumption that the crypto assets are "capital assets" and not traded frequently by the holder of it. However, where the the transaction in cryptocurrency is being carried out as usual trade or business, the income could be taxed as 'Profit & gains from Business'. Therefore at a very generic level, the rule of thumb could be that treatment depends upon the interval of occurrence of income."

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