Cryptocurrency, the India story

Excerpt from a recent news article read ‘If you had invested INR 4,500 in Bitcoin in 2010, today the investment would be worth INR 459 Crores.’ This does not make sense! Why is it that most people reading this article would not even think about making this kind of money in seven years flat. Maybe we did not know what Bitcoin meant back then and when we got to know about it, we thought it is some Ponzi scheme (Some analysts still believe that it is a big bubble which will go down under very soon).

So if you have had wisdom and would have put aside 4500 in some technology which you don’t understand, it would have made you richer than many of the industrialists and think about the return on investment (Let’s not talk about the tax you would pay on the income). Who knows, you would have been on the front page of business magazines like Mukesh Ambani’s son making news all around.

Cut to reality. You did not invest even a single rupee in Bitcoin and are wondering how is it going to impact your life being in one of the fastest developing countries of the World. The Good news is that it is not going to impact your daily life (read transactions) any sooner but the Bad news is that if you do not understand what it means, it may be too late to catch the bus.

Bitcoin is one of the types of ‘’Cryptocurrency’’ or ‘’Digital Currency’’. For those who know, please skip this para and for the uninformed, a cryptocurrency is a digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of its security feature. A defining feature of a cryptocurrency is its organic nature; it is not issued by any country or central authority, rendering it theoretically immune to government interference or manipulation. Cryptocurrency uses Blockchain technology (or distributed ledger) which is by far is touted as the most secure technology against the hacking threats. There is no physical currency and balances are kept on a ledger in the cloud. There are currently more than 780 reported Cryptocurrencies in the world.

So, what is the India Government saying about Cryptocurrency?

Virtual/digital currencies are not recognized by the Reserve Bank of India (RBI) or any other authority in India, as a ‘currency’. The official communication from RBI through a press release way back in December 2013 cautioned users, holders and traders of virtual currencies, including Bitcoins, about the potential financial, operational, legal, customer protection and security related risks.

The risks perceived are that use of digital currencies for illegal, antisocial and illicit activities may not be controllable. Since there is lack of information of the trading parties, such peer-to-peer non-regulated system may expose the investors to unforeseen losses including breaches of anti-money laundering and financing of terrorism laws.

RBI in its latest Press Release Dated February 1, 2017 has stated that it has not given any license/company to operate such schemes or deal with any virtual/digital currencies. RBI also added that the user, holder, investor, trader, etc. dealing with virtual/digital currencies will be doing so at their own risk.

Some experts compare bitcoins to the prepaid instruments which are regulated by the RBI. However, no such recognition of digital currencies under ‘payment systems’ or ‘prepaid instruments’ has been made by the RBI. At present, prepaid instruments, based on their classification and use are regulated by RBI.

And what would be the Taxation impact?

The Foreign Exchange Management Act (‘FEMA’) defines the term currency to include, ‘all currency notes, postal notes, postal orders, money orders, cheques, drafts, travelers cheques, letters of credit, bills of exchange and promissory notes, credit cards or such other similar instruments, as may be notified by the Reserve Bank’

For the purposes of the CGST Act 2017, the term ‘money’ is defined in section 2(75) as ‘the Indian legal tender or any foreign currency, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheque, money order, postal or electronic remittance or any other instrument recognised by the Reserve Bank of India when used as a consideration to settle an obligation or exchange with Indian legal tender of another denomination but shall not include any currency that is held for its numismatic value’

Evidently virtual/ digital currencies do not qualify under any of the above definitions.

Primarily the taxation for any goods/services is governed by their classification under the taxation law. Some views classify the virtual/digital currencies under the definition of ‘computer programme’ or ‘Computer Software’. A possible classification as goods also has been looked at considering the fact that currency is a “medium of exchange” i.e. it has a value ascribed to it and is traded on the various exchanges.

Since there is no clarity on the tax treatment in India, it is helpful to look at the treatment being made in countries which have accepted the digital currency. Some jurisdictions have defined Bitcoin/cryptocurrencies as ‘other negotiable instruments’ and hence exempt from VAT/GST while others classify it as ‘intangible property’ subject to GST. The supply of the cryptocurrency is treated as a supply of services under Singaporean tax law and hence GST is payable on supply, as well as on any subsequent trade of ‘virtual currency’ for other goods or services. The Canadian Revenue Agency has taken a view that, digital currencies are intangible goods for tax purposes and to be dealt accordingly for tax purpose.

As we see, the Governments which have recognized the digital currencies have appropriately classified them based on their use in that country and considering the economic environment. The taxability issues have accordingly been defined, if not settled.

Considering the lack of clarity in India, there are bound to be immediate tax and regulatory issues which need to be addressed quickly by the Government. Let us agree that regulations on digital currencies will defeat their basic purpose of such currencies being free from any Government intervention however if somehow the digital currencies can be tracked, the resulting ease of business may surpass the ills being counted.

The Governments’ objective should be to encourage Indian Economy, particularly, in the Fin-Tech Sector, by removing impediments to the development and use of digital currencies and related technology in India. This will assist the entire Indian Fin-Tech ecosystem to be internationally competitive.

Audit approach under the Ind- AS regime

With Indian Companies expanding their horizons across the globe at a rapid clip, a need has emerged to prepare Financial Statements that are in line with the globally accepted accounting standards so as to enable the companies to report to various stakeholders spread across multiple geographies an easily understandable and comparable picture of their financial performance and position. Continue reading…

Indian Corporates – Do you WannaCry or Be Ready

On Friday, May 12 something which might sound like Justin Bieber’s new soundtrack started mayhem across the world. A new ransomware called ‘Wannacry,’ began spreading on Windows based computing systems. Once executed, the malicious program encrypts the user’s files whilst self-replicating to other vulnerable machines on the same network. The infection is touted to spread across 150 countries and Lakhs of machines worldwide. Almost 50,000 attack attempts were detected solely in India Continue reading…

Effective Compliance and Ethics programme in an organisation- an absolute necessity today

When one thinks of ‘effective’ compliance programme in an organisation, there are many characteristics to it that can be cited. Ever increasing rates of reported misconducts in an organization, results of ethical cultural survey etc. are a few aspects that come to mind. These characteristics, in addition to providing important insight into the overall effectiveness of a compliance program also provide subtle indicators for a corrective action plan. Continue reading…

Goods and Services Tax (‘GST’) on Online Food Delivery Websites

1. Background

Not so long ago in order to have a one off scrumptious meal, an ordinary citizen was required to go through the travails of an inordinately long distance to an upmarket restaurant and satiate one’s palate. On the downside, however, this would entail one to have deep pockets and would limit such visits to only a couple in a month. Recognizing the dearth of time in people’s lives and their urge to have everything readily delivered to them, the young Indian entrepreneurial minds tapped into a market segment that had high risks coupled with higher rewards. This sector was ‘Food Delivery’. Continue reading…

Budget 2017- What may be in store

Budget 2017- What may be in store

Union Budget 2017 is going to witness two historical changes. First is the change in the date of presenting the budget from 28th February to 1st February and the second being the merger of railway budget with the union budget. Both these changes are indicating the government’s intent to expedite the implementation of the financial decisions by the start of the financial year.

This year’s budget may revolve around two major economic decisions taken by the government in 2016, introduction of Goods and Services Tax and the demonetisation move announced on November 8. Since people at large are uncertain on the impact of both, the budget is expected to have some positive sops for both individuals and corporates.

Few changes and expectations from the Budget 2017 are:
a) Various incentives for widening the tax base
Currently only 3.5% of the 800 million Indian adults file taxes as opposed to developed nations where the ratio is 75%+. Further 1.2% only actually pay taxes in India, vs. 1.9% in China, 6% in Brazil, 33% in Russia and 55% in USA (maturity of country’s tax economy is also one of the major factors above).
The budget may introduce few incentives which would encourage the non tax filing population to take steps for filing income tax returns and pay taxes.

b) Expected incentives for individuals

 The exemption limit for individuals was revised in FY 2014-15. Keeping in view the cost of living trend in the economy and to compensate the population from the inconvenience faced due to demonetization, the tax slab rates may be revised as follows:
Upto 3 lacs – NIL
3 – 5 lacs – 10%
5-10 lacs – 20%
Above 10 lacs – 30%
The education cess may also be revisited keeping in view that it was introduced more than a decade ago with the sole purpose of providing basic education to all.

 Long term and short term capital gain upto 5 lacs to be rationalized and taxed based on the slab rate rather than the special rate assigned for the capital gain tax.

 Increase in the exemption limit under Section 80C from INR 1,50,000 to INR 2,00,000

 Increase the limit of deduction of interest on housing loan borrowed for self-occupied house may be increased to INR 300,000 in metro cities in view of the high costs of residential houses in metro cities. The condition of completion of construction within 5 years from the year of borrowing may also be done away with.

 Tax exemption on preventive health check-up should be raised from the current INR 5,000 to a maximum of INR 20,000 under section 80-D of the Act.

 The current tax exemption limit of INR 15,000 per annum towards reimbursement of medical expenditure by the employer is inadequate in comparison with the medical expenses incurred by the taxpayer and needs to be increased to at least INR 50,000 per annum.
c) Expected incentives for corporates

 Reduction in the Tax Rate for companies
The previous budget introduced a reduction in the corporate tax rate from 30% to 25% over the next four years along with corresponding phasing out exemptions and deductions. As a result of this amendment, many exemptions and deductions were phased out but corporate tax rate was reduced to 29% only in case of domestic companies where the total turnover or gross receipts during the previous year 2014-15 does not exceed 5 crores. In order to standardize the same, the following is expected:
1. Reduction in the corporate tax rate to 25 % inclusive of surcharge and education cess
2. Such reduction should not be restricted to certain domestic companies and should be extended to all tax payers

 Minimum Alternate Tax
The current MAT rate comes to approximately 20% for companies having book profit. Also the credit for MAT paid is time bound and can only be carried forward for further 10 years. This has been a major point of debate for corporate assesses. It is expected that these two ambiguities are take care off and the following may be proposed:
1. Reduction of the current MAT rate
2. Increase the period of utilization of MAT credit

 Abolition of Dividend Distribution Tax
The previous budget proposed 10% taxation of dividend proceeds received by the Shareholders (Individual and HUF) if it exceeds 10 lakhs. This led to double taxation of dividend both in the hands of company and Individual shareholders. Thus, Dividend Distribution Tax may be completely abolished and dividends may be taxed only in the hands of the recipients.

 Deferment of Income Computation and Disclosure Standards (ICDS)
The government may further defer the applicability of ICDS (which is supposed to be mandatory from 1st April 2017) as there are still a lot of ambiguities in determining its impact and usage.

 Deferment of Place of Effective Management (POEM)
In relation to provisions of POEM, there are a lot of ambiguities in the interpretation of guiding principles for determining POEM. Since POEM has a long term impact on companies, we may see a deferment in the applicability of POEM for a reasonable period of time to allow taxpayers and tax authorities to understand its guidelines.

If wishes were horses, beggars would ride. Though the above expectations may or may not form part of the Finance Bill 2017, but everyone would be eager to hear what the finance minister has to deliberate for the welfare of the common man, who is yet not out of the demonetization suddenness.

Artificial Intelligence – what’s in store for the Accounting Profession

The involvement of ‘Artificial intelligence’ is on the rise in a lot of areas touching our lives and the accounting profession is no exception. Artificial intelligence is being used to enhance human creativity through cognitive technology, enabling innovation across industries and bringing with it fundamental changes along with opportunities and threats.

Some predictions and research studies have gone to the extent of announcing that accountants have about 95% probability of losing their current jobs as computers and machines take over the task being carried out by them for many decades -number crunching and data analysis.

There is no denying the fact that technology in the form of Artificial Intelligence is here to stay and those getting affected by it will do well to embrace rather than ignore it. However, the reality, at least in the short to medium term may not be as stark as the prediction above. This phenomenon is definitely new, but technology has historically eliminated some jobs and created a few others. The profession was faced with a similar quandary when Computing Machines took over the tasks carried out by accountants. The traditional accountants then thought that they were in real danger of losing their jobs; which didn’t happen. What happened instead was that the same set of accountants got trained in the new technology, hence altering the typical nature of their jobs. Sure, some feathers were ruffled and those who couldn’t adapt lost their jobs but it was a transition that happened according to the need of the hour. The change this time in terms of Artificial Intelligence taking over is more real, yet manageable.

Artificial Intelligence has the potential to completely transform the accountancy profession. The future will offer smarter applications that drive value for accountants and their clients. It is bringing higher convenience for the profession as it helps to reduce transactional and routine tasks such as data entry, book-keeping and compliance work and allows accounting and finance professionals to focus more on value-added services. One view, and rightfully so is that the more repetitive bookkeeping or process-driven tasks are more likely to be taken over by automation as compared to the high-value tasks.

Gradually, Artificial Intelligence has become an essential part for the day to day activities of professionals, insurance underwriters, tax preparers, loan officers, credit analyst of the technology industry.

Whenever a change of a magnitude such as this takes over, it is always split into 2 smaller worlds-one the bigger organisations and the bigger audit firms and the other represented by the smaller companies and the smaller practices. It is often felt that the smaller organisations, represented typically by centralised controls, not too many segregation of duties and lesser reliance on IT controls may not understand the nuances of such  a change and may be left behind. However, things are not as they appear. The small firms have realised that if they do not adapt to the changing times, there is a huge risk of not being able to catch up ever. Technology has finally caught up with the audit and accounting firms of all sizes and they realise that they must keep up with the technology trends to remain relevant in the marketplace.

Some in the audit profession believe that Artificial Intelligence platforms will be a boon for them as it will enhance the quality of audit. The efficiency of audit will go up with a lot of technology at disposal and more insights can be obtained thus.

In the scenario given above, there may be an opportunity for universities to have a re-look at their curriculum and train the students for the future. The employers may soon start looking for technologically trained accountants, which may not exactly replace the accountants or reduce their chances of getting a job, rather it will shift the balance in favour of the more suited and technologically trained candidates.

We all were witness to how the automation of accounting jobs became of such strategic value to the profession in the field of finance shared services industry. The accounting as well as audit may well happen in a back-office in India for a transaction that took place elsewhere, even at an overseas location for that matter. All this bodes good for the onboarding of Artificial Intelligence in the near future.

Specialized software already automates many accounting, tax, and audit data-gathering and processing tasks and provides the results to professionals who use their professional judgment to review. With software automating many of the manual tasks, professionals can focus on delivering value operational advice to their clients.

In the modern days where everybody relies on computer technology, artificial intelligence has made things easier for commercial finance that requires information from across business divisions such as sales and marketing or logistics. With automation, they’ll be able to meet growing demand for quicker, more streamlined bookkeeping and valuable advisory services.

As mentioned earlier, Robotic machines can undeniably do a better job for transactional roles like GL accounting, accounts receivable and accounts payable, but other higher skill roles like financial planning and analysis or business controlling would continue to require human intervention at an advanced level.

There are limitations for use of Artificial Intelligence as well that include risk of trusting customised or non-customised software. Furthermore, cost is a big barrier to fully implement and extract the advantages of artificial intelligence in the corporate world. Computers are not completely designed to practice scepticism for which professionals must step in.

There is no doubt that in the coming days artificial intelligence will capture the world and will make work much easier than ever before, it will somehow have an impact on the jobs of the accountants and professionals as well. Nevertheless, technology will not be able to survive alone as it will require accountants to check its accuracy.

It is only the starting point in which industry leaders and technology pioneers must continue to create the right platforms and solutions that will drive success for all constituents in today’s digital economy.

Though Artificial Intelligence is here to stay, the accounting professionals need not panic as the technology is still in its young age. Digitalisation and some other related terms are becoming a jargon these days and though accountants to a large extent have gone digital, the digitalisation of jobs is still limited, even for the companies that are at the prime of their digital spending. It has been rightly said that “Accountants and professionals are to numbers what engineers are to machines.”

All in all, technology is still not completely ready to replace accountants, especially in providing advisory and strategic vision. There will never be a time when computers do everything and financial statement users just agree to the analysis without using their acquired thought process and wisdom. The users will always be reluctant to rely on information that hasn’t been audited by a professional of repute. We, like many others in the accounting profession believe that even if every single operation in the corporate world becomes automated, it will still require technically sound accountants to check the accuracy of work performed by the machines.

Puneet is a Partner with International Business Advisors (IBA). He is a Chartered Accountant with 13 years of post-qualification experience. He has rich experience in the field of accounting and auditing, due diligences and risk advisory to various mid-sized and large companies (Indian as well as trans-nationals) across various sectors. For most of his professional career he has worked with Big4 consulting firms such as KPMG and Deloitte.

In addition to heading the Assurance and Risk Advisory practice, he also leads the newly set-up Forensic practice at IBA.

He regularly writes on various accounting and auditing matters. For any professional assistance, he can be reached on or at +91 98180 03353