Headline: RBI presses for crypto prohibition as tax authorities warn offshore trading is undermining enforcement
India’s central bank has reiterated a hardline stance against cryptocurrencies and privately issued stablecoins, while tax officials say offshore trading and private wallets are making it increasingly difficult to track and tax crypto activity, according to internal government documents reviewed by Reuters.
What the RBI recommended
- In documents from May and June, the Reserve Bank of India recommended keeping cryptocurrencies and private stablecoins outside the regulated financial system and blocking banks and financial institutions from holding, trading or taking exposure to them.
- The central bank argued this approach would limit the risk of financial contagion and said it still views prohibition as the preferred policy direction rather than integrating crypto into the mainstream financial sector.
- The RBI also warned specifically about stablecoins: foreign-currency–backed tokens could erode India’s monetary sovereignty, while rupee-backed tokens could cut into seigniorage (revenue from issuing fiat currency) and create financial stability risks during severe market stress.
- The bank further noted stablecoins might make crypto profits harder to detect for tax authorities, because users would have less need to convert digital assets back into fiat.
Tax enforcement concerns
- The Income Tax Department told officials that crypto tax compliance remains weak despite reporting rules. Fewer than one quarter of the roughly 645,000 people who transacted in crypto in the year to March 2023 disclosed those trades on their income tax returns.
- The tax office said offshore exchanges, private wallets and rupee-denominated peer-to-peer trades make it harder to identify beneficial owners and recover taxes. It also cited sharp price swings and a lack of uniform valuation standards as complications for assessing digital-asset taxes.
- India currently taxes cryptocurrency gains at 30%.
Regulatory and enforcement activity
- Although India has no dedicated crypto law—after the Supreme Court struck down the RBI’s 2018 banking restrictions in 2020—a number of other supervisory moves are under way. Last month the Financial Intelligence Unit told several major crypto exchanges to preserve records of over-the-counter trades above $10,000 from January 2026, with a focus on beneficial ownership, source of funds and destination wallets as authorities ratchet up anti-money-laundering oversight.
- A draft bill that would have banned private cryptocurrencies was prepared in 2021 but never introduced in Parliament; a promised government discussion paper has been delayed multiple times. The finance ministry did conclude last September that current tax and other laws had helped contain some risks, but the latest internal documents show ongoing concern about financial stability as trading continues without a comprehensive regulatory framework.
Market scale and accounting review
- Despite policy uncertainty, India remains a major crypto market: Reuters cites tax department estimates that nearly 39 million Indians held about $2.1 billion in digital assets at the end of May. Meanwhile the Ministry of Corporate Affairs is examining accounting standards and guidance for virtual digital assets as debate over long-term policy continues.
Implication
- The combined messages from the RBI and tax authorities signal continued regulatory pressure: tighter banking restrictions, stepped-up AML and record-keeping requirements for exchanges, and ongoing scrutiny of stablecoins and institutional exposure. For now, crypto firms, traders and accountants in India face an uncertain, enforcement-focused environment while policymakers weigh whether to ban, constrain or more tightly regulate the sector.
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