At a recent event, government officials said that companies should disclose complete details of transactions done through digital currencies or cryptocurrencies for the financial year 2021-22 in their financial statements for keeping things transparent.

It is now mandatory for companies to reveal their trade or investment in cryptocurrencies in the current financial year, even if a bill is to be introduced in Parliament to ban private virtual currencies. Two officials with knowledge of the matter said. The order is not in opposition to the government's recent move to introduce a bill in Parliament that is expected to ban all private cryptocurrencies in India. After the Bill is enacted, the direction shall be suitably amended,

As stated in a bulletin issued by the Lok Sabha last week, “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 is aimed at creating a facilitating framework for the creation of an official digital currency to be issued by the Reserve Bank of India (RBI) in India. It also seeks to ban all private cryptocurrencies, however, allowing some exceptions to the underlying technology of the cryptocurrency and the promotion of its use."

At the present time, cryptocurrencies are unregulated, but not completely banned. Therefore, companies are asked to reveal all their investments and transactions in such digital currencies for the purpose of transparency and compliance. This step has been taken to prevent tax evasion and give the government an idea of how deep cryptocurrencies reached into corporate.

Experts also added that the amount of any cryptocurrency held at the end of the year must also be disclosed. The data will be useful to the government, especially as the government plans to introduce a law to regulate cryptocurrencies.

One thing that needs to be understood here is that this reporting does not capture retail trading, which is now a significant part of the cryptocurrency trading market. Furthermore, it is a year-end disclosure, as opposed to disclosures involving regular market trading, which would be required for the purpose of regulating transactions in cryptocurrencies.

It is clearly observable that with the disclosure rules the government intends to collect data on digital currencies. The government can later use this data to evaluate the taxation effects of FEMA (Foreign Exchange Management Act) and trading in cryptocurrencies.

It will also help investors evaluate whether companies are taking money out of core business and investing in adventures such as cryptocurrency.

There is an inherent conflict between the government's directive to report transactions in cryptocurrencies and proposed bills to ban private cryptocurrencies. The apparent conflict may be resolved once the term “private cryptocurrencies” will be explained properly.

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