Business Formation, Business Registration, Contracts and Agreements, Licenses, TAXATION

Oh, Mighty Bitcoin Startups Here are your Top 15 must follow Regulations

Bitcoin is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. From a user perspective, Bitcoin can be considered to be cash for the Internet. Bitcoin can also be seen as the most prominent triple entry bookkeeping system in existence. While there are or have been at least 110 other digital currencies, Bitcoin accounts for 77% of the market value of all digital currencies and an even higher percentage of digital currency users (credits to Pantera capital). This article will help entrepreneurs who dream to start a Bitcoin Startup in India. Here are the rules and regulations that a Bitcoin Startup must follow:

  1. Business Registration: You can set up such business as a PVT. LTD. Or LLP or OPC company.
  1. KYC Norms: KYC Norms are the norms set by the RBI that require banks to continuously monitor their customers’ transactions.
  1. Abide by the principal laws concerning Bitcoin:
    1. The Constitution of India, 1950
    2. The Foreign Exchange Management Act, 1999 (FEMA)
    3. The Reserve Bank of India Act, 1934 (RBI Act)
    4. The Coinage Act, 1906 (Coinage Act)
    5. The Securities Contracts (Regulation) Act, 1956 (SCRA)
    6. The Sale of Goods Act, 1930 (Sale of Goods Act)
    7. The Payment and Settlement Systems Act, 2007 (Payment Act)
    8. Indian Contract Act, 1872 (Contract Act)
  1. Cross border transfer of Bitcoin: FEMA regulates all inbound and outbound foreign exchange related transactions, in effect regulating the capital flows coming into and moving out of the country. 
  1. Taxation of Bitcoin: In India, taxes are levied either by the central and the state governments. Taxes may be on income or expenditure. When taxation is on income, it may be on Bitcoin representing such income. On expenditure meaning cost of acquiring Bitcoin, such as Central Sales Tax, Value-Added Tax or Service Tax.
  1. Income Tax Taxation of income: In India income is governed by the provisions of the Income Tax Act, 1961 (ITA). Under the ITA, residents are subject to tax in India on their worldwide income, whereas non-residents are taxed only on income sourced in India.
  1. Central Sales Tax / Value Added Tax: For a Bitcoin transaction to be taxed under the CST Act, there should be a sale.
  1. Service Tax: Service tax is levied by the central government at 12.36% on all services provided in India except certain specified services. Service providers can take credit for service tax paid on input services utilized and for excise duty paid on inputs and capital goods (barring certain specified inputs). Services provided outside India are not subject to service tax in India. Typically, services are provided in India if the service recipient is in India. The 2015 Budget proposes to increase the rate of service tax to from 12.36% (inclusive of cesses) to 14%.
  1. Trademark: Trademark protection for the word marks that include the term Bitcoin, and various Bitcoin logos is essential for financial institutions dealing in Bitcoin transactions and online payment systems. Bitcoin platforms / Bitcoin exchanges represent marks with various visually or phonetically similar Bitcoin marks, by doing so you can trademark.
  1. Patent: Under Indian patent law, a mathematical or business method or a computer program per se or algorithms are not inventions and are hence not patentable in India.
  1. Copyright: Bitcoin is protocol and software that are published openly and any developer around the world can review the code or make their own modified version of the Bitcoin software. No exclusivity is generally claimed in open source software. Hence, it cannot be copyrighted.
  1. Privacy Policy: Abide by The IT Act, that protects items of sensitive personal data or information (SPDI).
  1. Terms of service: You are required to have the Terms of services document in place, that has all the required information about services like Age verification and other rules.
  1. FDI Regulations: Companies which only provide online services i.e.., Bitcoin may be categorized either under the automatic category or under the category of a non-banking financial services company.
  1. International criminal law: Due to financial security issues and to avoid cyber attacks, it is important that companies pay due considerations while doing business on international soil.
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