India’s central bank has renewed its hard line on crypto and supports a policy “leaning towards prohibition,” according to government documents reviewed by Reuters on Wednesday.
The Reserve Bank of India also recommended keeping banks and other financial institutions away from crypto assets and privately issued stablecoins.
At the same time, the documents add fresh pressure to India’s long-running crypto policy debate. The tax department also warned that offshore exchanges, private wallets and peer-to-peer rupee trades make it harder to trace owners, assess gains and recover unpaid taxes.
RBI wants crypto kept outside banks
According to Reuters, the RBI said Indian banks and financial institutions should not hold, trade or gain exposure to crypto assets.
It also said the same approach should apply to privately issued stablecoins, as officials want to limit the risk of stress moving from crypto markets into the regulated financial system.
The central bank has warned about crypto risks for years. However, the latest documents show a clearer push to keep digital assets outside India’s banking system. At present, banks are not formally banned from dealing with crypto. Even so, major lenders have largely avoided the sector because of repeated RBI warnings.
Moreover, the RBI also raised concerns over stablecoins. It said foreign currency-backed tokens could threaten India’s monetary sovereignty, while rupee-backed stablecoins could reduce income the government earns from issuing fiat currency. It also warned that such tokens could create risks during periods of market stress.
This position comes as stablecoins gain wider use in global markets. In the U.S., new policy support for stablecoins has raised expectations of broader adoption.
Meanwhile, Japan and Singapore have moved toward regulated crypto systems, while China continues to prohibit the use of crypto tokens.
Tax department flags offshore trading risks
India’s tax department said crypto transactions through overseas exchanges and private wallets can make it harder to identify beneficial owners. It also said rupee-denominated peer-to-peer trades can hide taxable income because users may avoid normal exchange channels.
According to the documents, fewer than a quarter of 645,000 people who traded crypto in the financial year ending March 2023 reported those transactions in their tax returns. India taxes gains from cryptocurrencies at 30 percent, but officials said price swings and the lack of common valuation standards make assessment harder.
The department also found cases of misreporting in crypto disclosures filed under income tax laws. In addition, it warned that stablecoins may make gains harder to detect because users may not need to convert crypto holdings back into fiat currency before moving value.
As a result, the Ministry of Corporate Affairs is reviewing accounting standards and other guidance for virtual digital assets. That review may help authorities decide how companies should record, value and report crypto assets in official accounts.
India’s crypto policy remains unsettled
India has yet to have a comprehensive legislation either banning or regulating crypto. A 2021 draft bill to ban private cryptocurrencies was not introduced in Parliament. Since then, innovation, consumer risk, monetary control and financial stability have been debated, with a number of delays to a discussion paper.
In September last year, the finance ministry had earlier supported limited regulatory clarity during discussions with the RBI. That was based on the belief that established tax and other laws have helped mitigate risks. The latest documents, however, indicated that the key agencies were coming down harder.
Even with the policy uncertainty, India’s crypto users are humongous in numbers. Tax department estimates cited by Reuters show that nearly 39 million crypto traders held about $2.1 billion in digital assets at the end of May.
Binance and Coinbase are examples of global exchanges that can be registered with a government body to operate in India.
The local enforcement backdrop has also become more active. As The Coin Headlines reported, India’s Enforcement Directorate recently investigated several Bengaluru crypto payment firms over alleged unauthorized cross-border transfers using virtual digital assets. The agency said that probe was still at an early stage and no final wrongdoing had been proven.
The case involved claims that some firms helped move rupees into crypto, sent the assets through wallets and later converted them back into fiat currency. That model is close to the concern now raised by tax officials: crypto can move value across platforms and borders in ways that are harder to monitor than bank transfers.
Meanwhile, Asian markets are taking different paths on digital assets, with Taiwan moving toward licensing and stablecoin rules while India weighs tighter controls.
The documents suggest India’s central bank still prefers to keep crypto at the edge of the financial system. The government has not announced a final policy.
Officials have not set a public timeline for the decision, leaving policy questions open. Yet the latest warnings from both the RBI and tax department show that banks, exchanges, wallet users and peer-to-peer traders may face closer review as New Delhi weighs its next step.
