India’s central bank, the Reserve Bank of India, continues to favor a ban on cryptocurrencies to address tax evasion concerns, according to a Reuters report based on government documents.
The RBI has long argued that banks and financial institutions should be prohibited from holding, trading, or offering any exposure to crypto assets and privately issued stablecoins. This position is unchanged even as digital assets gain broader acceptance globally.
Tax compliance gaps
Tax authorities are particularly worried about widespread underreporting of crypto gains. In the financial year ending March 2023, less than a quarter of the 645,000 individuals who transacted in crypto actually declared those gains on their tax returns, the documents showed.
Transactions on offshore exchanges and peer-to-peer platforms remain hard to track and tax. These compliance gaps have reinforced the central bank’s cautious stance.
The RBI also opposes rupee-pegged stablecoins, not just dollar-linked tokens, warning they could erode seigniorage and create instability during market turbulence.
Regulatory limbo
Indian crypto investors have been in a regulatory grey zone since the Supreme Court struck down the RBI’s 2018 banking ban. Crypto is neither explicitly illegal nor clearly regulated. A draft bill to ban private cryptocurrencies from 2021 was never presented, and policy discussions have been repeatedly delayed.
Despite this uncertainty, India has nearly 39 million crypto investors holding roughly $2.1 billion in digital assets as of May.
Economic concerns
India’s reluctance also stems from its reliance on energy imports and persistent current account deficits. Recent tensions with Iran pushed oil prices higher, inflating import costs and weakening the rupee. Authorities worry widespread crypto use could accelerate capital outflows outside traditional banking channels, worsening the external deficit.
While the government has spoken about balancing innovation with risk management, internal documents suggest key agencies are not yet ready to embrace digital assets. The RBI declined to comment when approached by CoinDesk.
