India’s cryptocurrency policy remains uncertain, but internal government documents show that key authorities continue to favour tighter restrictions on digital assets. The Reserve Bank of India (RBI) has once again backed a policy that leans towards banning cryptocurrencies, while the Income Tax Department has raised concerns that trading through overseas exchanges is difficult to monitor, according to the documents reviewed by Reuters.
The document suggests that although the government has not yet decided whether to regulate or ban cryptocurrencies, important agencies remain worried about the risks linked to virtual digital assets.
RBI WANTS STRONGER RESTRICTIONS
The RBI has repeated its long-standing view that India’s crypto policy should be “leaning towards prohibition”.
According to documents from May and June, the central bank believes banks and other financial institutions should not be allowed to hold, trade or have exposure to cryptocurrencies or privately issued stablecoins. It believes such steps would reduce the risk of problems spreading to the wider financial system.
A source familiar with the RBI’s thinking told Reuters that the central bank prefers keeping cryptocurrencies outside the regulated financial system. The source spoke on the condition of anonymity as they were not authorised to speak publicly.
Although there is currently no rule stopping Indian banks from dealing in cryptocurrencies, most major lenders have stayed away from the sector following repeated warnings from the RBI.
TAX DEPARTMENT RAISES TRACKING CONCERNS
The Income Tax Department has also expressed concerns about cryptocurrency trading.
Officials believe transactions carried out through offshore crypto exchanges are difficult to track. This makes it harder to monitor tax compliance and increases the risk of tax evasion, according to the documents.
The department estimates that nearly 39 million crypto traders in India held around $2.1 billion worth of digital assets at the end of May.
POLICY REMAINS UNDECIDED
India’s approach to cryptocurrencies has remained unclear for several years.
In 2018, the Supreme Court struck down RBI measures that had effectively prevented banks from providing services to crypto businesses. Since then, cryptocurrencies have continued to operate in a legal grey area.
The government had prepared a draft Bill in 2021 to ban private cryptocurrencies, but it was never introduced in Parliament. A discussion paper on the issue has also been delayed several times.
The government has maintained that any future policy should strike a balance between encouraging innovation, managing risks, protecting financial stability, preserving monetary sovereignty and safeguarding consumers from losses.
EARLIER DISCUSSIONS FAVOURED LIMITED CLARITY
Reuters had earlier reported that during internal discussions in September, the Finance Ministry, after consulting the RBI, supported limited regulatory clarity for virtual digital assets.
Officials believed that existing tax rules and other laws had helped contain some of the risks associated with cryptocurrencies.
However, the latest documents indicate that key government agencies continue to worry about the financial stability risks posed by crypto trading in the absence of clear regulations.
The RBI has also repeated its concerns about stablecoins.
According to the documents, stablecoins linked to foreign currencies could affect India’s monetary sovereignty. At the same time, rupee-backed stablecoins could reduce the government’s earnings from issuing currency and create financial stability risks during periods of market stress.
These concerns form part of the RBI’s broader view that cryptocurrencies and related digital assets should remain outside the country’s regulated financial system.
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