India's Reserve Bank has renewed its call for a crypto policy leaning towards prohibition, while the country's tax department warned that offshore trading and private wallets complicate compliance tracking. Government documents showed the RBI wants banks and financial institutions barred from holding, trading, or gaining exposure to crypto assets and privately issued stablecoins, with the tax department separately flagging underreporting, offshore exchange use, peer-to-peer trades, and valuation issues. India has not adopted a final crypto policy, leaving digital assets in a grey zone, as the country has nearly 39 million crypto traders holding about $2.1 billion in digital assets according to tax department estimates.
RBI Backs Prohibition-Leaning Crypto Policy
The Reserve Bank of India has repeatedly warned that crypto assets may pose risks to financial stability, monetary control, and consumer protection. The latest documents show the central bank again backed a policy leaning towards prohibition.
The RBI said banks and financial institutions should be blocked from holding or trading crypto assets. It also wants them barred from gaining exposure to privately issued stablecoins.
At present, Indian banks are not legally prohibited from dealing with crypto. However, major lenders have largely avoided the sector after repeated warnings from the central bank.
A source familiar with the RBI's thinking said the central bank wants crypto kept outside the regulated financial system. That position would limit direct links between crypto markets and banks.
The RBI also raised concerns about stablecoins, including those backed by foreign currencies and those linked to the Indian rupee. The central bank said foreign-currency stablecoins could pose risks to domestic monetary sovereignty.
Rupee-backed tokens could also reduce government income from issuing fiat currency, the RBI said. The central bank warned that stablecoins may add pressure during periods of market stress.
The documents also said stablecoins could make crypto gains harder to detect and tax. If traders can remain inside crypto markets without converting assets into fiat currency, authorities may find it harder to track taxable profits.
Tax Department Flags Offshore Trading and Compliance Gaps
India's tax department found cases of misreporting in disclosures filed under income tax laws. The documents said fewer than a quarter of 645,000 individuals who made crypto transactions in the financial year ending March 2023 reported them on tax returns.
Offshore exchanges and private wallets were listed as major compliance challenges. The tax department said those channels make it harder to identify beneficial owners and recover unpaid taxes.
Rupee-denominated peer-to-peer trades also create tracking problems. Such trades can make taxable income harder to detect when they occur outside standard reporting channels.
The tax department also warned that crypto price volatility and the lack of uniform valuation standards complicate tax assessment. Those issues can affect how authorities calculate gains, holdings, and liabilities.
India currently taxes gains from crypto assets at 30%. It also applies a 1% tax deducted at source on crypto transactions, a rule that has already pushed some activity toward offshore platforms.
India Maintains Grey Zone Status on Crypto Regulation
India has delayed a formal crypto policy for years. A 2021 draft bill to ban private cryptocurrencies was never introduced in Parliament, and a planned discussion paper has been deferred several times.
Crypto has remained in a legal grey zone since a court struck down earlier RBI restrictions that had effectively blocked banks from serving crypto businesses. The government has since said any policy must balance innovation with risk control.
The Ministry of Corporate Affairs is also reviewing accounting standards and guidance for virtual digital assets. That review may shape how companies report crypto holdings and related activity.
The latest documents suggest key agencies now favor tighter controls over limited regulatory clarity. A final decision still rests with the government, which has not announced whether it will move toward prohibition, regulation, or a mixed framework.
FAQ
What position does India's central bank take on crypto regulation?
The Reserve Bank of India has renewed its call for a crypto policy leaning towards prohibition. Government documents showed the RBI wants banks and financial institutions barred from holding, trading, or gaining exposure to crypto assets and privately issued stablecoins.
What compliance challenges did India's tax department identify?
India's tax department flagged offshore trading, private wallets, peer-to-peer trades, and valuation issues as major compliance challenges. The documents said fewer than a quarter of 645,000 individuals who made crypto transactions in the financial year ending March 2023 reported them on tax returns.
Has India adopted a final crypto policy?
India has not adopted a final crypto policy, leaving digital assets in a legal grey zone. A 2021 draft bill to ban private cryptocurrencies was never introduced in Parliament, and a planned discussion paper has been deferred several times.
