India's cryptocurrency policy could soon see a significant shift, with fresh government documents indicating that the Reserve Bank of India (RBI) continues to favour a policy leaning toward banning private cryptocurrencies. At the same time, the Income Tax Department has warned that digital assets are increasingly being used to evade taxes, particularly through overseas exchanges and private wallets.
Key Highlights
- RBI recommends banks be barred from holding or trading cryptocurrencies.
- Fewer than one-fourth of 645,000 crypto traders reported holdings in tax returns, officials found.
According to reports, the RBI believes cryptocurrencies pose serious risks to India's financial stability and monetary sovereignty. The central bank has recommended that banks and other regulated financial institutions be barred from holding, trading, or gaining exposure to cryptocurrencies and privately issued stablecoins, arguing that allowing such assets into the formal financial system could raise systemic risks and complicate financial regulation.
Tax Department Flags Widespread Evasion Risks
The Income Tax Department has raised growing concerns over the difficulty of tracking crypto transactions. Officials found that fewer than one-fourth of the 645,000 individuals who traded cryptocurrencies during the financial year ending March 2023 actually reported those holdings in their income tax returns. Transactions routed through overseas exchanges, private wallets, and peer-to-peer platforms make it harder for authorities to identify beneficial owners and recover taxes. Officials believe the growing use of offshore crypto platforms is making enforcement increasingly difficult despite the government's existing tax framework.
India Still Lacks a Comprehensive Crypto Law
India currently taxes cryptocurrency gains at 30% and imposes a 1% Tax Deducted at Source (TDS) on transactions. Despite these tax rules, the country still lacks a comprehensive legal framework governing cryptocurrencies. A draft bill proposing a ban on private cryptocurrencies was discussed in 2021 but never reached Parliament, while a long-awaited policy paper has been delayed multiple times.
The latest documents also reveal that the Ministry of Corporate Affairs is reviewing accounting standards and reporting guidelines for virtual digital assets - suggesting regulators are preparing stronger compliance measures even as the government continues evaluating its long-term crypto strategy.
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What This Means for India's Crypto Industry
India's cautious stance differs from countries like Japan and Singapore, which have chosen to regulate cryptocurrencies rather than prohibit them. Still, Indian authorities remain concerned that widespread adoption of private digital assets could undermine monetary policy, increase financial risks, and facilitate tax evasion.
For crypto investors, exchanges, and fintech companies operating in India, the coming months could prove pivotal. Whether the government ultimately introduces tighter regulations or moves closer to a partial ban, the decisions ahead are likely to shape the future of India's digital asset market for years to come.
India may tighten cryptocurrency regulations as the RBI reiterates support for a policy favouring a ban on private digital assets, while tax authorities warn of rising evasion through offshore exchanges and private wallets. Although no final decision has been announced, regulators are considering stricter oversight that could significantly reshape India's crypto ecosystem.
