The Reserve Bank of India has reiterated its support for cryptocurrency policies that favor a prohibition-oriented approach, according to the latest government documents reviewed by Reuters. The central bank continues to argue that banks and financial institutions should be barred from holding, trading or gaining exposure to crypto assets and privately issued stablecoins to limit contagion risks. A person familiar with the RBI's thinking told Reuters that the central bank continues to favour prohibition as a policy direction rather than allowing cryptocurrencies into the mainstream financial sector. The RBI's opposition extends beyond dollar-pegged tokens to include rupee-pegged stablecoins as well, warning that they could erode seigniorage and create stress points during periods of market turbulence. At present, Indian banks are not prohibited from dealing in cryptocurrencies, but most major lenders have stayed away from the sector after repeated cautionary statements from the RBI. The stance revives a fight the RBI lost in 2018, when a court struck down policies that had effectively banned crypto dealings, leaving digital assets in a grey zone since then.
Despite India's policy ambiguity, the country has nearly 39 million crypto traders who held about ₹17,700 crore ($2.1 billion) in digital assets at the end of May, according to estimates from the tax department. This represents a significant user base that continues to trade without clear regulatory framework. The tax department has found instances of misreporting of cryptocurrency holdings, with fewer than a quarter of the 645,000 individuals who made cryptocurrency transactions in the financial year ending March 2023 reporting them on their tax returns. Transactions routed through overseas exchanges and private wallets make it harder to identify beneficial owners and recover taxes. The position persists despite India having nearly 39 million crypto investors out of a population of almost 1.5 billion, highlighting the scale of the regulatory gap. Recent documents from May and June show the RBI has recommended preventing banks and financial institutions from holding, trading, or taking exposure to cryptocurrencies and privately issued stablecoins.
The tax department has warned that price volatility and absence of uniform valuation standards complicate assessment of crypto assets for tax purposes. Transactions routed through overseas exchanges and rupee-denominated, peer-to-peer trades make taxable income harder to track. India imposes taxes on cryptocurrency gains at 30%, but the department's findings show that existing tax laws have helped contain risks from the asset class. The government also levies a 1% tax on each trade, adding another layer of compliance complexity. Tax authorities are particularly concerned about widespread underreporting, with fewer than a quarter of the 645,000 individuals who transacted in crypto actually declaring those gains on their tax returns. The department said overseas exchanges, private wallets and rupee-denominated peer-to-peer transactions make it harder to identify beneficial owners and recover taxes. The Ministry of Corporate Affairs is examining accounting standards and guidance for virtual digital assets as reported by Reuters.
The RBI has extended its warnings to stablecoins, tokens pegged to fiat currencies, arguing that foreign-currency versions threaten monetary sovereignty. The central bank warns that rupee-backed tokens could cut the government's currency income and strain stability during market stress. It added that permitting stablecoins could make it harder to identify and tax cryptocurrency profits, as users would have less need to convert their holdings into fiat currencies. The tax department has flagged offshore exchanges and private wallets as key issues for tracking, as these channels make it harder to identify beneficial owners. Peer-to-peer trades in rupees also make taxable income difficult to trace, creating additional compliance challenges for authorities. Another concern is that stablecoins and other digital assets could make it harder for authorities to identify cryptocurrency gains, as investors may not need to convert their holdings into traditional currencies.
India has allowed cryptocurrencies to exist in a grey zone since a court in 2018 struck down RBI policies that effectively banned them. A 2021 draft legislation to ban private cryptocurrencies was never introduced in Parliament, and policy discussions have been repeatedly delayed. The government has delayed implementing a formal policy, saying any plan should balance innovation with risk management while protecting monetary sovereignty, financial stability and safeguarding against consumer losses. In September, India's finance ministry, after consultations with the RBI, backed limited regulatory clarity for virtual assets, arguing that existing taxation rules and other measures had helped reduce potential risks. However, the latest documents reviewed by Reuters show that authorities remain concerned about financial stability as cryptocurrency trading continues without a dedicated regulatory framework. Last month, India's Financial Intelligence Unit instructed several major crypto exchanges to preserve records of over-the-counter cryptocurrency transactions exceeding $10,000 from January 2026 onward, focusing on beneficial ownership, source of funds, and destination wallets as authorities intensified anti-money laundering oversight.
