India’s RBI renews anti crypto stance as tax reporting concerns persist

India’s central bank has renewed its recommendation for a cryptocurrency policy leaning toward prohibition, while tax authorities have warned that offshore trading continues to make crypto tax enforcement difficult.

According to internal government documents reviewed by Reuters, the Reserve Bank of India (RBI) has reiterated its long-standing position that cryptocurrencies and privately issued stablecoins should remain outside the regulated financial system. 

The documents also show that the Income Tax Department has raised concerns over gaps in reporting and the difficulty of tracing transactions conducted through overseas exchanges and private wallets.

RBI reiterates banking restrictions and stablecoin concerns

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 central bank argued that keeping digital assets outside the regulated financial system would reduce the risk of financial contagion.

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.

Alongside cryptocurrencies, the RBI has also warned against stablecoins. According to the documents reviewed by Reuters, the central bank said foreign currency-backed stablecoins could weaken India’s monetary sovereignty, while rupee-backed tokens could reduce revenue generated from issuing fiat currency and create financial stability risks during periods of market stress.

The RBI also argued that increased stablecoin use could make crypto profits harder to detect for tax purposes because users would have less need to convert digital assets into fiat currency. India currently taxes cryptocurrency gains at 30%.

The recommendations closely follow the position the RBI presented before the Parliamentary Standing Committee on Finance in late May. As crypto.news previously reported, the central bank had again recommended preventing cryptocurrencies from being used in payments and settlements while limiting banking sector exposure to digital assets and privately issued stablecoins.

Tax department flags reporting gaps

Separate findings from India’s tax department indicate that cryptocurrency tax compliance remains limited despite existing reporting requirements.

Documents reviewed by Reuters show that fewer than one quarter of the 645,000 individuals who carried out cryptocurrency transactions during the financial year ending March 2023 disclosed those transactions in their income 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. It also warned that sharp price swings and the lack of uniform valuation standards complicate the assessment of digital assets for tax purposes.

Even as the government has not introduced a comprehensive crypto law, regulatory scrutiny has continued through other channels. 

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. The request focused on beneficial ownership, source of funds, and destination wallets as authorities intensified anti-money laundering oversight.

Policy debate remains unresolved

India has operated without a dedicated cryptocurrency law since the Supreme Court struck down the RBI’s 2018 banking restrictions in 2020. A draft bill proposing a ban on private cryptocurrencies was prepared in 2021 but was never introduced in Parliament, while a long-awaited government discussion paper has been postponed multiple times.

Although the finance ministry concluded after consultations with the RBI last September that existing tax and other laws had helped contain risks associated with virtual digital assets, the latest documents reviewed by Reuters show that authorities remain concerned about financial stability as cryptocurrency trading continues without a dedicated regulatory framework.

India remains one of the world’s largest cryptocurrency markets despite the policy uncertainty. Reuters cited tax department estimates showing nearly 39 million Indians held about $2.1 billion worth of digital assets at the end of May. 

Meanwhile, the Ministry of Corporate Affairs is examining accounting standards and other guidance for virtual digital assets as discussions over the country’s long-term crypto policy continue.