India’s Central Bank Reaffirms Push for Crypto Ban as Tax Officials Flag Evasion Risks

• India’s central bank renewed support for a crypto ban to safeguard financial stability. 
• Tax officials said offshore exchanges and private wallets complicate crypto tax enforcement. 
• Nearly 39 million Indians held about $2.1 billion in crypto despite regulatory uncertainty.

India’s central bank has renewed its support for a crypto policy that leans toward prohibition. At the same time, the country’s tax authorities noted that offshore trading platforms and private wallets are making it harder to track crypto transactions and enforce tax compliance.

According to internal government documents, several Indian agencies favor tighter restrictions on virtual digital assets. However, the government has yet to adopt a formal policy to regulate or ban cryptocurrencies.

RBI Wants Crypto Kept Outside Financial System

The Reserve Bank of India (RBI) reiterated in internal documents from May and June that policies “leaning toward prohibition” may be necessary to protect the financial system.

The central bank said banks and other regulated financial institutions should be barred from holding, trading, or gaining exposure to cryptocurrencies and privately issued stablecoins. It argued this would reduce contagion risks.

Although Indian banks are not formally prohibited from dealing with crypto assets, most major lenders have stayed away from the sector after repeated RBI warnings. According to sources, the RBI still prefers to keep cryptocurrencies outside the regulated financial system.

The RBI also repeated its concerns about stablecoins. It said foreign currency-backed tokens could threaten India’s monetary sovereignty. Meanwhile, rupee-backed stablecoins could reduce government revenue from fiat currency issuance and create financial stability risks during periods of market stress.

Tax Officials Flag Underreporting and Offshore Trading

India’s tax department found widespread underreporting of cryptocurrency activity. Of the 645,000 people who conducted crypto transactions during the financial year ending March 2023, fewer than one-quarter reported those transactions on their income tax returns.

Officials also warned that overseas exchanges, private wallets, and rupee-denominated peer-to-peer markets make it much harder to identify beneficial owners, calculate taxable income, and recover unpaid taxes.

The department added that crypto price volatility and the lack of standardized valuation methods further complicate tax assessments. India currently imposes a 30% tax on cryptocurrency gains.

Regulatory Outlook Remains Unclear

India has operated in a regulatory gray area since the country’s Supreme Court struck down the RBI’s banking restrictions on cryptocurrencies in 2020.

A proposed 2021 bill to ban private cryptocurrencies was never introduced in Parliament. Meanwhile, a long-awaited government discussion paper on digital assets has been delayed several times.

The government has previously said any future framework should balance innovation with risk management while protecting financial stability, monetary sovereignty, and consumers.

Millions of Indians Still Hold Crypto

Despite the lack of a comprehensive regulatory framework, crypto adoption remains significant in India. According to estimates cited by the tax department, nearly 39 million Indians held about $2.1 billion worth of digital assets at the end of May.

The documents also show that India’s Ministry of Corporate Affairs is reviewing accounting standards and broader guidance for virtual digital assets. The move suggests policy discussions are continuing even as regulators maintain concerns over financial stability and tax compliance.

Related: RBI Rejects Crypto Legal Status at India’s 7th Parliamentary Meeting