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FollowingIndia\'s tax authority supports central bank restrictions on cryptocurrencies, citing underreporting and cross-border tracking problems.
According to government documents reviewed by Reuters, India\'s income tax authority has publicly supported the Reserve Bank of India (RBI)\'s stance in promoting restrictions on cryptocurrencies, citing widespread underreporting and difficulty in tracking offshore transactions. The documents were signed in May and June, showing that the central bank reiterated its long-standing position.
The Reserve Bank of India hopes that India\'s policy on digital assets will \"tend to ban\". It also wants to ban banks and other financial institutions from holding, trading or contacting cryptocurrencies and privately issued stablecoins, saying such links could spread risks throughout the financial system.
What is worth noting is the public support of the tax department this time. Officials told the government that transactions conducted through overseas exchanges are difficult to monitor, increasing the risk of tax evasion. In the fiscal year ending March 2023, less than a quarter of the 645,000 cryptocurrency traders reported relevant earnings when filing taxes. Transactions on overseas platforms and peer-to-peer channels, especially transactions denominated in rupees, remain difficult to track and tax.
How does the Reserve Bank of India view stablecoins and monetary sovereignty?
According to the Reserve Bank of India, stablecoins pegged to foreign currencies, most commonly the U.S. dollar, could have a negative impact on India\'s monetary sovereignty. In a background note submitted to the Parliament\'s Standing Committee on Finance a few days ago, the central bank said applying regular financial regulation to cryptocurrencies would be tantamount to legalizing \"speculative products that are not conducive to the economy.\"
The central bank pointed out that there are currently 54 service providers registered with financial intelligence agencies in the Indian market, as well as 39.3 million KYC-verified users, holding approximately Rs 204.37 billion (approximately US$2.4 billion) in assets.
However, the Reserve Bank of India\'s position has not been supported by everyone in the country. The Institute of Chartered Accountants of India (ICAI) told the same committee that digital assets would provide strategic opportunities if combined with the country\'s fintech advantages. ICAI wants a complete law covering issuance, trading and custody.
How does India manage cryptocurrency-related businesses?
India\'s cryptocurrency has been in a legal gray area since the Supreme Court in 2020 overturned a 2018 order by the Reserve Bank of India to cut off banking access to the sector. A draft bill to ban private cryptocurrencies was drafted in 2021, but was never submitted to Parliament for review, and the promised discussion document was repeatedly postponed.
To date, the government has relied largely on tax and compliance tools to manage the area, charging a 30% tax on earnings and withholding taxes at the time of transactions at a 1% rate. However, critics point out that this approach does not curb cryptocurrency activity, but instead pushes it overseas. In February this year, MP Rajaf Chada said that about 73% of India\'s cryptocurrency trading volume has been shifted to foreign exchanges, and about 120 million users use overseas platforms. Chada later pointed out in Parliament: \"Prohibition does not mean protection, supervision is protection.\"
The Reserve Bank of India also stated that the widespread adoption of cryptocurrencies is detrimental to India\'s macroeconomic exposure and may intensify capital outflows and exacerbate external deficits. This situation was reflected during the U.S. -Iran conflict, when rising oil prices affected India, which relies on energy imports.
