India’s stance on cryptocurrencies appears to be hardening, with newly revealed government documents showing that the Reserve Bank of India (RBI) continues to advocate for a policy that leans toward restricting or prohibiting crypto, while the country’s tax authorities warn that offshore exchanges and private wallets are making tax enforcement increasingly difficult.
The documents, reviewed by Reuters, suggest that key financial regulators are becoming more concerned about the risks posed by digital assets, even as crypto adoption continues to grow across the country.
RBI Continues to Favor a Restrictive Approach
According to the internal discussions, the RBI has reaffirmed its long-standing position that cryptocurrencies should remain outside India’s regulated financial system.
The central bank believes banks and financial institutions should be prohibited from:
- Holding cryptocurrencies on their balance sheets
- Trading digital assets
- Offering crypto-related financial services
- Maintaining exposure to privately issued stablecoins
Officials argue that limiting the banking sector’s involvement would reduce financial contagion risks and help preserve monetary stability.
While India has not formally banned cryptocurrencies, the RBI continues to advocate for a policy framework that strongly discourages their integration into the mainstream financial system.
Stablecoins Face Increased Regulatory Scrutiny
The RBI has also raised concerns about stablecoins, warning that both foreign currency-backed and rupee-backed tokens could create new financial risks.
According to the central bank:
- Foreign stablecoins could weaken India’s monetary sovereignty.
- Rupee-backed stablecoins could reduce government revenue generated through currency issuance.
- Stablecoins may complicate tax enforcement by allowing users to move value without converting crypto into traditional currency.
Regulators believe these developments could make financial monitoring and taxation significantly more challenging as digital asset adoption expands.
India’s Crypto Market Continues to Grow
Despite regulatory uncertainty, cryptocurrency ownership in India continues to rise.
Government estimates indicate that approximately 39 million Indians currently own digital assets, collectively holding around $2.1 billion worth of cryptocurrencies.
India remains one of the world’s largest crypto markets, even though the country has yet to introduce comprehensive legislation governing digital assets.
Instead, cryptocurrencies continue operating within a regulatory gray area following the Supreme Court’s 2020 decision that overturned the RBI’s previous banking restrictions on crypto businesses.
Tax Authorities Flag Widespread Underreporting
India’s Income Tax Department has expressed growing concern over tax compliance among crypto investors.
Internal findings suggest that only a small percentage of crypto traders accurately disclosed their digital asset activity.
According to the documents:
- Around 645,000 individuals conducted crypto transactions during the 2022–23 financial year.
- Fewer than 25% reported those transactions in their tax filings.
Officials believe the actual level of non-reporting may be substantially higher.
Offshore Exchanges Complicate Enforcement
One of the biggest challenges highlighted by tax authorities is the increasing use of offshore crypto exchanges and private wallets.
According to the report, transactions conducted through overseas platforms make it significantly harder to:
- Identify beneficial owners
- Track taxable gains
- Verify asset ownership
- Recover unpaid taxes
Peer-to-peer crypto transactions conducted directly in Indian rupees also create additional difficulties for tax enforcement because they often bypass traditional financial reporting channels.
Valuation Challenges Add Further Complexity
Beyond tracking transactions, regulators also face difficulties determining the taxable value of digital assets.
Extreme price volatility, combined with the absence of standardized valuation methodologies, makes it difficult to calculate taxable gains consistently across different cryptocurrencies.
To address these issues, India’s Ministry of Corporate Affairs is reportedly examining accounting standards and financial reporting guidance for virtual digital assets.
Policy Direction Appears to Be Shifting
Previous discussions within India’s Finance Ministry had suggested a more balanced regulatory approach that would provide greater legal clarity while allowing innovation to continue under existing tax laws.
However, the newly disclosed documents indicate that regulators are becoming increasingly focused on financial stability, consumer protection, and tax compliance rather than expanding the digital asset ecosystem.
The shift comes as several major economies, including the United States, Europe, Japan, and Singapore, continue advancing clearer crypto regulations, while China maintains a broad prohibition on cryptocurrency activity.
Why It Matters
India’s latest internal policy discussions suggest the country’s largest financial institutions remain cautious about integrating cryptocurrencies into the formal banking system. While no nationwide ban has been announced, the RBI’s continued support for restrictive policies and the tax department’s concerns over offshore trading indicate that regulators are prioritizing financial stability and tax enforcement over rapid crypto adoption.
With nearly 39 million crypto investors already participating in the market, any future policy changes could have significant implications for exchanges, investors, financial institutions, and one of the world’s fastest-growing digital asset markets.
