Centre for Internet & Society


The Ministry of Corporate Affairs (MCA) on March 24, 2021, came out with a notification inter alia mandating disclosures of cryptocurrency holdings by companies in their balance sheets. These changes have been effectuated by making requisite amendments to Schedule III of the Companies Act, 2013. The notification specified that companies are now required to report the profit or loss accrued due to trade or investment in any type of cryptocurrency or virtual currency, the amount of cryptocurrency that the company holds on the reporting date, and the deposits or advances from any person that have been made for the purposes of trading or investing in cryptocurrencies or virtual currencies.


The decision on new disclosure requirements comes amidst parliamentary discussions on cryptocurrency and speculations of another attempt at prohibition. Meanwhile, this step has been welcomed by the cryptocurrency industry in India as it signals towards a more positive approach being taken by the government with regards to corporate cryptocurrency transactions in India. Moreover, while it opens up new possibilities of scrutiny of such transactions, this measure will also be beneficial in identifying key policy gaps in cryptocurrency regulation in India when we look at corresponding requirements in foreign jurisdictions.


In this Issue Brief, the policy landscape in the United States of America (USA), United Kingdom (UK), and Japan is discussed and particular emphasis is placed upon definition, accounting practices, and taxation, with respect to cryptocurrencies. It is thus identified that such jurisdictions have taken concrete steps in this regard by providing clear guidance (such as through HMRC’s Cryptoassets Manual and ASBJ’s advisory notification on accounting for cryptocurrencies).  


Then, the regulations in India are looked into comprehensively and specific policy recommendations are made, as it is ascertained that no clear steps have been taken in the aspects that have been mentioned above. Although the March MCA Notification is a positive step on corporate cryptocurrency transactions, the following steps are needed further: firstly, a clear and comprehensive definition of cryptocurrency and cryptoassets must be laid down, preferably through a central legislation; secondly, a separate category for cryptocurrencies under the Indian Accounting Standards (Ind AS) should be created; and thirdly, complete guidance on applicable taxes on cryptocurrency transactions, by individuals and corporates, must be provided.  


 It is thus concluded that while the government is willing to engage with various stakeholders, with positive intent, comprehensive and definitive steps are the need of the hour. This is essential to safeguard the large number of cryptocurrency investors in India, and to quell the uncertainty that is created by speculative measures such as banks declining services for cryptocurrency transactions.


 The full issue brief can be read here

 


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