Note: This blog is written by an external blogger. The views and opinions expressed within this post belong solely to the author.

The crypto movement has generated a lot of interest in India, mostly among the younger generation. As a result of its popularity, the logical next step would be to introduce legislation into this area. India is still in the nascent stages when it comes to any form of crypto-related regulation. However, the Companies Act, 2013 is one of the very first laws to take a small step towards regulation. 

Disclosure under Companies Act, 2013

Schedule III of the Companies Act, 2013 was amended via a notification dated 24th March 2021. The notification aimed at improving the transparency of companies by making changes to the presentation of its financial statements. The following point was added as part of the ‘General Instructions for Preparation of Statement of Profit and Loss’:

Details of CryptoCurrency or Virtual Currency

Where the Company has traded or invested in Cryptocurrency or Virtual Currency during the financial year, the following shall be disclosed:-

Profit or loss on transactions involving Cryptocurrency or Virtual Currency Amount of currency held as at the reporting date, Deposits or advances from any person for the purpose of trading or investing in CryptoCurrency/ virtual currency.

Note that the above requirement applies to all companies (Division I, II and III companies) with effect from 1st April 2021.

Impact of the disclosure requirements

The following are personal observations made on the basis of the disclosure requirements:

The intent of the lawmaker can be inferred from how the notification is drafted. While the terms used are ‘crypto currency’ and ‘virtual currency’, the requirement is to disclose profit or loss and also the amount held. This shows that crypto is being treated like an asset class rather than an alternative mode of payments. There has been no attempt to define the terms ‘crypto currency’ or ‘virtual currency’ yet, anywhere in the Act. While ‘crypto currency’ is a term used in general parlance in this day and age, it is the term ‘virtual currency’ that leaves things a bit open-ended. We do not know yet what constitutes ‘virtual currency’. Could reward points and such promotional items be termed as ‘virtual currency’ because of their ability to be exchanged for goods or services? It appears that the crypto exchanges have been the target of this amendment since it requires disclosure of deposits or advances taken for the purpose of trading or investing in crypto/virtual currency. With the advent of crypto and blockchain, we have also seen a new trend in this sphere – Non Fungible Tokens (NFTs). There is no mention about the treatment or disclosure of such items being held by the company.

Conclusion

While this might seem like a very small step, it is indeed moving in the right direction. Given the number of use cases and advantages of crypto, it would be a win-win situation for all to regulate crypto rather than try to ban it outright. The post Crypto Disclosures as per Companies Act, 2... appeared first on WazirX Blog .