India's RBI Reiterates Crypto Ban Stance Amid Tax Evasion Concerns

The Reserve Bank of India (RBI) has once again reiterated its strong preference for a policy "leaning towards prohibition" of cryptocurrencies, while the country's tax department has raised significant concerns about the challenges of tracking transactions and preventing tax evasion. This information stems from internal government documents reviewed by Reuters, highlighting a continued push among key Indian agencies for tighter curbs on virtual digital assets, despite the government not yet having adopted a definitive policy to either ban or regulate them. The Reuters report, published on July 8, 2026, details a firm stance from the central bank that banks and other financial institutions should be barred from holding, trading, or gaining any exposure to cryptocurrencies and privately issued stablecoins. This prohibition, according to the RBI, is crucial for keeping digital assets outside the regulated financial system and mitigating potential contagion risks to India's broader financial stability. The central bank's long-standing anti-crypto posture, dating back to a 2018 banking ban that was later struck down by India's Supreme Court, remains unchanged. The latest internal documents, from May and June, underscore that the RBI has not softened its position, even as other global economies explore and embrace digital assets and blockchain technology. The RBI specifically warns that stablecoins, particularly those backed by foreign currencies, could pose a threat to India's monetary sovereignty. Furthermore, rupee-backed stablecoins are also viewed with skepticism, as they could potentially reduce the government's revenue from issuing fiat currency and introduce financial stability risks during periods of market stress. Accompanying the RBI's strong stance, the Income Tax Department has voiced serious concerns regarding the monitoring and taxation of cryptocurrency transactions. Officials indicated that transactions conducted through offshore crypto exchanges are particularly difficult to track, making it challenging to ensure tax compliance and increasing the risk of tax evasion. The department has identified numerous instances of misreporting of cryptocurrency holdings in income tax disclosures. Pertinently, internal estimates by the tax department suggest that out of approximately 645,000 individuals who engaged in crypto transactions during the financial year ending March 2023, fewer than a quarter actually reported these gains in their tax returns. Challenges in identifying beneficial owners and recovering taxes are compounded by the use of private wallets and rupee-denominated peer-to-peer transactions. Despite the regulatory ambiguity and concerns, India boasts a significant crypto market, with an estimated 39 million crypto traders holding approximately $2.1 billion worth of digital assets as of May. India continues to tax crypto gains at 30% and levies a 1% Tax Deducted at Source (TDS) on transfers, a framework that has been maintained for the 2026-2027 fiscal year despite calls for tax relief. India's approach to cryptocurrencies has been characterized by a "grey zone" since the Supreme Court's 2018 ruling. A draft bill from 2021 aimed at banning private cryptocurrencies was never introduced in Parliament, and a government discussion paper on the subject has faced repeated delays. The government has stated its intention to formulate a policy that balances innovation with risk management, while also protecting monetary sovereignty, financial stability, and consumers from potential losses. This ongoing debate was further highlighted during a July 2, 2026, meeting of the Parliamentary Standing Committee on Finance, where both the RBI and the Institute of Chartered Accountants of India (ICAI) presented their views. During this parliamentary meeting, the RBI reiterated its position that virtual digital assets pose risks to an emerging economy like India and should not be legalized at this stage, citing concerns about potential misuse for illegal activities such as terror funding and narcotics trafficking. The RBI also highlighted the difficulty of monitoring offshore entities involved in crypto trading. In contrast, the ICAI, while clarifying it did not endorse crypto assets or contradict the RBI's core concerns, advocated for a comprehensive, law-backed regulatory framework for Virtual Digital Assets. The ICAI expressed its readiness to assist in developing accounting standards, financial reporting principles, and compliance guidelines to enhance transparency and regulatory oversight in the VDA space. This dual perspective underscores the complex regulatory challenges India faces as it navigates the evolving landscape of digital assets. While major Indian lenders have largely avoided direct crypto exposure following the RBI's warnings, the absence of clear legislation keeps the sector in a state of uncertainty. The continued internal discussions and the persistent concerns from the central bank and tax authorities signal a preference within key government bodies for a highly restrictive or prohibitive approach to cryptocurrencies in India.

Frequently Asked Questions

Read Full Story on Quick Digest