India’s cryptocurrency policy debate is sharpening as the Reserve Bank of India (RBI) pushes restrictions while tax data reveals reporting gaps. According to government documents reviewed by Reuters, the RBI favors an approach leaning toward prohibition and wants banks and financial institutions kept away from holding, trading, or gaining exposure to crypto assets.
RBI Wants Crypto Kept Outside Banking
India had 39 million crypto investors holding USD 2.1 billion in assets as of May 2026, according to tax department estimates.
Despite that scale, India still lacks a comprehensive crypto framework. The Supreme Court overturned an RBI banking restriction in 2020, while a 2021 proposal to prohibit private cryptocurrencies never reached parliament.
The RBI’s primary concern is financial contagion. It argues that separating banks from digital assets could prevent crypto volatility from spreading to deposits and the financial system.
Stablecoins are also a concern. The central bank believes dollar-pegged tokens could weaken monetary sovereignty by encouraging holdings outside the domestic banking system. Rupee-linked stablecoins could meanwhile reduce seigniorage revenue and create instability during stressed markets.
Tax Data Shows Compliance Problems
Tax authorities have identified another challenge: reporting. In the financial year ending March 2023, fewer than 25% of the 645,000 people conducting cryptocurrency transactions declared their gains in income tax returns.
Authorities also identified misreported holdings and difficulty tracking transactions through offshore exchanges, private wallets and rupee-based peer-to-peer markets. These channels can make taxation and enforcement more difficult.
Capital Flight Adds to Concerns
India’s dependence on imported energy influences policymakers. Higher oil prices can increase import costs, pressure the current account, and weaken the rupee.
Authorities worry that widespread crypto adoption could create another route for capital to move outside regulated financial channels, particularly through peer-to-peer transactions.
Final Thoughts
India’s crypto market is substantial despite regulatory uncertainty. The RBI’s restrictive position shows policymakers remain focused on financial stability, monetary sovereignty, and tax compliance.
The challenge is whether India can control these risks without pushing crypto users toward offshore platforms and less transparent markets.
Also Read: India’s First Tokenized Bond: What Changes When Debt Moves to Blockchain
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