The move is part of the government’s efforts to assess the scale of such transactions and keep tabs on entities seeking to lure investors by promising high returns.
The disclosures are to be made in the profit and loss statement, just like employee stock options or earning per share details.
A notification issued by the Ministry of Corporate Affairs (MCA) asked companies to provide details of cryptocurrency or virtual currency, such as profit or loss on transactions, amount of currency held on the reporting date and deposits or advances from any person for the purpose of trading or investing in cryptocurrency.
A provision for this had already been made in Companies (Auditor’s Report) Order, 2020 following reports that several firms were getting investors to park funds in cryptocurrency.
So far, the government was unable to get a fix on the scale of these transactions and the companies were not disclosing it. It
Will also help in investor protection.
According to estimates, over 7 million Indians hold more than $1 billion worth in cryptocurrencies, but the number of companies holding them in not known.
Cryptocurrency exchanges view it as a positive step from the regulators in identifying the number of Indian companies involved in
cryptocurrency trade and the volume of exposure too. And believe this a major step towards regulating the crypto assets in India.
Will the government tax it?
The industry players say the government can tax cryptocurrencies under GST and Income-tax and the tax implications will arise from whether they are treated as income or assets.
For the purpose of income tax, cryptocurrencies will be treated as property and profits from its sale will be taxed as business profit if it was acquired for trade or capital gains if it was bought to create wealth.
For GST, there was a proposal to levy 18% tax on crypto transactions. Currently, Indian crypto exchanges pay GST on the fees and commissions levied by them on crypto trading.
Experts say 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 which see lower rates of GST.
The government is in the process of bringing in a bill on cryptocurrencies. While it said that the bill would seek to ban all private cryptocurrencies such as bitcoin and ethereum, it has mellowed down stance recently to taking calibrated approach towards digital assets.
The business intelligence software company MicroStrategy has disclosed it purchased over $1 billion in Bitcoin in 2020. This month, car maker Tesla announced it bought $1.5 billion in Bitcoin and will accept it as a payment. Tesla CEO Elon Musk has also tweeted about his investments in the digital currency Dogecoin. Twitter too is reportedly mulling the purchase of Bitcoin to boost its reserves, while Twitter CEO Jack Dorsey said in 2019 that he has been purchasing $10,000 in Bitcoin each week.
Salaries in crypto
International crypto companies are hiring engineers and back-end developers in India as contractors and paying them in cryptocurrencies to accelerate their adoption and bypass local taxes and laws regarding cross border payments, crypto industry insiders told ET.
India still lacks a regulatory framework on cryptocurrency, which means they are technically neither legal nor illegal. Many young engineers and freelancers are thus accepting payments in cryptocurrency due to the ease of transferring it across borders, and lower transaction costs compared to bank transfers.