India’s RBI Strengthens Anti-Crypto Stance Amid Continuing Tax Reporting Challenges
The Reserve Bank of India (RBI) has reiterated its position on cryptocurrency regulation, advocating for a ban, while tax authorities have noted difficulties in enforcing crypto taxes due to offshore trading activities.
Summary
- The RBI has reaffirmed its support for a cryptocurrency framework that favors prohibition, cautioning against banks’ exposure to crypto assets and private stablecoins.
- Tax authorities have indicated that the use of offshore exchanges, private wallets, and peer-to-peer transactions complicates tax reporting and enforcement.
- Government documents suggest an ongoing evaluation of long-term crypto policy, given the substantial number of investors in digital assets.
According to Reuters, internal governmental documents reveal the RBI’s unwavering stance that cryptocurrencies and privately issued stablecoins should remain outside of the regulated financial framework.
The Income Tax Department has raised concerns about reporting deficiencies and the challenges of tracking transactions executed through foreign exchanges and private wallets.
RBI Underlines Banking Restrictions and Stablecoin Issues
Recent documents from May and June show that the RBI has advised against permitting banks and financial entities to hold, trade, or interact with cryptocurrencies and privately issued stablecoins.
The central bank asserts that excluding digital assets from the regulated financial sector could lessen the risk of financial contagion.
A source familiar with the RBI’s position informed Reuters that the central bank continues to favor a prohibitive strategy instead of incorporating cryptocurrencies into the conventional financial ecosystem.
Regarding stablecoins, the RBI has warned that foreign currency-backed tokens may threaten India’s monetary authority, while rupee-pegged coins could adversely affect fiat currency revenues and create financial stability concerns amid market volatility.
Furthermore, the RBI mentioned that heightened stablecoin adoption could obstruct tax detection of crypto profits, as users might hesitate to convert digital assets into fiat currency. Presently, India imposes a 30% tax rate on crypto gains.
These recommendations align with the RBI’s stance shared before the Parliamentary Standing Committee on Finance in late May, where they urged restrictions on cryptocurrency uses in payments and settlements while limiting banking sector exposure to digital assets.
Tax Department Points Out Reporting Issues
Documents analyzed by Reuters indicate that under 25% of the 645,000 individuals who engaged in cryptocurrency transactions during the financial year concluding in March 2023 reported these transactions in their income tax filings.
The department highlighted that overseas exchanges, private wallets, and rupee-based peer-to-peer transactions complicate the identification of beneficial owners and the recovery of taxes. Additionally, significant price volatility and the absence of standardized valuations make tax assessments for digital assets challenging.
Even without a comprehensive cryptocurrency law, regulatory scrutiny has remained through various channels.
Recently, India’s Financial Intelligence Unit instructed major crypto exchanges to maintain records of over-the-counter transactions surpassing $10,000 starting January 2026, focusing on beneficial ownership, source of funds, and destination wallets, as part of increased anti-money laundering vigilance.
Continuing Policy Discussion
India has been lacking a dedicated cryptocurrency law since the Supreme Court overturned the RBI’s banking prohibitions in 2020. Although a draft bill proposing a ban on private cryptocurrencies was formulated in 2021, it was never introduced to Parliament, and a long-delayed government discussion paper has seen multiple postponements.
Following consultations with the RBI last September, the finance ministry concluded that existing tax and regulatory frameworks have effectively addressed risks associated with virtual digital assets. However, documents reviewed by Reuters reveal persistent concerns regarding financial stability as cryptocurrency trading continues without a specific regulatory structure.
Despite the uncertain policy landscape, India remains one of the largest cryptocurrency markets globally. According to tax department estimates, nearly 39 million Indians held approximately $2.1 billion in digital assets by the end of May.
Simultaneously, the Ministry of Corporate Affairs is examining accounting standards and other guidelines for virtual digital assets as discussions regarding the long-term crypto policy evolve.