India\'s central bank reiterates anti-cryptocurrency stance, tax report concerns persist

The Bank of India reiterated its tendency to ban cryptocurrencies, and the tax department said that offshore transactions made taxation more difficult.

The Bank of India once again put forward policy recommendations that tend to ban cryptocurrencies, and warned banks not to get involved in cryptoassets and private stablecoins. Tax authorities said offshore exchanges, private wallets and peer-to-peer transactions still pose greater challenges to tax reporting and enforcement.

Internal government documents show that despite the continued holding of digital assets by millions of investors, India is still reassessing its long-term cryptocurrency policy.

The central bank reiterates bank restrictions and stablecoin risks

According to recent (May to June) documents, the Reserve Bank of India recommended prohibiting banks and financial institutions from holding, trading or contacting cryptocurrencies and privately issued stablecoins. The central bank believes that excluding digital assets from the regulated financial system can help reduce the possibility of financial risks spreading.

A person familiar with the central bank\'s thinking revealed that the central bank still advocates banning as a policy direction rather than allowing cryptocurrencies to enter the mainstream financial sector.

In addition to cryptocurrencies, the central bank also issued warnings on stablecoins. The document shows that the central bank believes that stablecoins backed by foreign currencies may weaken India\'s monetary sovereignty, while rupe-backed tokens may reduce revenue from fiat tender issuance and raise financial stability risks during times of market stress.

The central bank also pointed out that the widespread use of stablecoins will make cryptocurrency profits more difficult for tax authorities to detect, as users do not need to exchange digital assets for legal tender. India currently imposes a 30% tax on cryptocurrency earnings.

These recommendations are highly consistent with the central bank\'s position stated at the Parliamentary Standing Committee on Finance at the end of May. The central bank once again recommended banning the use of cryptocurrencies for payments and settlements, while limiting the banking industry\'s exposure to digital assets and private stablecoins.

Tax authorities point out reporting vulnerability

Independent investigation by the Indian tax authorities shows that tax compliance for cryptocurrencies remains limited despite reporting requirements.

documents show that in the fiscal year ending March 2023, less than a quarter of the 645,000 people who traded cryptocurrencies disclosed those transactions in their income tax returns.

The tax department said overseas exchanges, private wallets and peer-to-peer transactions denominated in rupees made it more difficult to identify the actual owner and recover taxes. The department also warned that sharp price fluctuations and the lack of uniform valuation standards have increased the complexity of tax assessments of digital assets.

Although the government has not yet introduced a comprehensive cryptocurrency law, regulatory review has continued through other channels. Last month, India\'s financial intelligence unit instructed several major cryptocurrency exchanges to keep records of over-the-counter cryptocurrency transactions exceeding US$10,000 starting from January 2026, focusing on actual ownership, funding sources and target wallets to strengthen anti-money laundering supervision.

The policy debate is not yet settled

India has no specific cryptocurrency law since the Supreme Court of India overturned the Reserve Bank of India\'s 2018 banking ban in 2020. A draft bill drafted in 2021 to ban private cryptocurrencies was never submitted to Parliament, and the government\'s long-awaited discussion document has been postponed multiple times.

Although the Indian Ministry of Finance concluded in September last year after consultation with the Reserve Bank of India that existing taxes and other laws could help curb risks associated with virtual digital assets, the latest documents show that authorities remain concerned about financial stability as cryptocurrency transactions are still conducted in the absence of a dedicated regulatory framework.

Despite policy uncertainty, India remains one of the largest cryptocurrency markets in the world. Estimates from the tax department show that as of the end of May, nearly 39 million Indians held approximately US$2.1 billion in digital assets. Meanwhile, India\'s Ministry of Corporate Affairs is reviewing accounting standards and other guidance documents for virtual digital assets, and discussions about the country\'s long-term cryptocurrency policy continue.