India’s central bank has doubled down on a cautious — and potentially prohibitive — approach to cryptocurrencies, even as tax authorities warn that offshore trading and private wallets are undermining efforts to enforce crypto taxes, according to internal government documents reviewed by Reuters.
What the RBI is urging
- Recent May–June documents show the Reserve Bank of India (RBI) again recommending that banks and financial institutions be barred from holding, trading, or taking exposure to cryptocurrencies and privately issued stablecoins.
- The central bank’s argument: keeping digital assets outside the regulated financial system reduces the risk of financial contagion. A person familiar with the RBI’s thinking told Reuters the bank still favours prohibition as policy direction rather than integrating crypto into the mainstream banking system.
Stablecoins a particular concern
- The RBI warned that foreign-currency-backed stablecoins could erode India’s monetary sovereignty, while rupee-backed tokens might cut into seigniorage (the government’s revenue from issuing fiat) and create instability during market stress.
- It also noted that wider stablecoin usage could hamper tax detection, since users would be less likely to convert crypto into fiat currencies—complicating authorities’ ability to trace taxable events.
Tax authorities flag enforcement gaps
- The Income Tax Department told officials that tax compliance for crypto remains limited. Fewer than one quarter of the roughly 645,000 people who traded crypto in the financial year ending March 2023 disclosed those transactions in their tax returns.
- The department cited overseas exchanges, private wallets and rupee-denominated peer-to-peer trades as major hurdles to identifying beneficial owners and recovering taxes. Sharp price swings and the absence of uniform valuation standards also complicate tax assessment. (India currently taxes crypto gains at 30%.)
Regulatory scrutiny continues through other channels
- Even without a comprehensive crypto law, enforcement has stepped up: India’s Financial Intelligence Unit recently instructed several major exchanges to retain records of over-the-counter crypto transactions above $10,000 from January 2026, focusing on beneficial ownership, source of funds and destination wallets as anti-money-laundering oversight intensifies.
Legal and policy backdrop
- India has had no dedicated cryptocurrency law since the Supreme Court struck down the RBI’s 2018 banking restrictions in 2020. A draft bill seeking to ban private cryptocurrencies was prepared in 2021 but never introduced in Parliament; a promised government discussion paper has been repeatedly delayed.
- After consultations with the RBI, the finance ministry concluded last September that existing tax and other laws had so far helped contain risks from virtual digital assets — but the new internal documents show authorities remain worried about financial stability while trading continues without a dedicated regulatory framework.
Market scale and next steps
- Despite uncertainty, India remains a major crypto market: tax department estimates put nearly 39 million Indians holding about $2.1 billion in digital assets at the end of May.
- The Ministry of Corporate Affairs is examining accounting and disclosure standards for virtual digital assets as discussions over a long-term policy continue.
Taken together, the documents reviewed by Reuters paint a picture of continued regulatory caution: the RBI pressing for strict limits or prohibition, tax authorities struggling to enforce a 30% gains tax amid offshore and peer-to-peer activity, and other agencies tightening oversight even as lawmakers delay a unified legal framework.
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