India's Central Bank Renews Push for Crypto Prohibition Amid Tax Evasion Concerns

India's central bank (RBI) is renewing its push for a crypto ban, now backed by the tax department, which found fewer than 25% of 645,000 traders reported gains. Despite having 39 million crypto investors, the country's policy remains in a legal grey area. The RBI cites risks to financial stability and monetary sovereignty, particularly from stablecoins, as reasons for its prohibitive stance.

Central bank prohibition stance

• ▪The RBI's stated goal is to keep cryptocurrencies outside of the regulated financial system
• ▪The RBI has cited risks to financial stability, monetary sovereignty, and consumer protection as reasons for its stance
• ▪The RBI believes widespread crypto adoption could accelerate capital outflows and worsen India's external deficit
• ▪The Reserve Bank of India (RBI) has reasserted its call for a cryptocurrency policy "leaning towards prohibition."
• ▪The RBI wants to bar banks and financial institutions from holding, trading, or having any exposure to crypto assets and privately issued stablecoins

Tax compliance challenges

• ▪India applies a 30% tax on gains from cryptocurrencies and a 1% tax deducted at source on transactions
• ▪India's tax department found that fewer than 25% of the 645,000 individuals with crypto transactions in the fiscal year ending March 2023 reported them
• ▪As of May, India had approximately 39 million crypto investors holding around $2.1 billion in digital assets, according to tax department estimates

India crypto policy evolution

• ▪Cryptocurrencies in India exist in a legal grey zone since the Supreme Court struck down a 2018 RBI ban
• ▪A 2021 draft bill that would have banned private cryptocurrencies was never introduced in Parliament
• ▪The RBI cannot impose a nationwide crypto ban unilaterally and requires approval from the Government of India and Parliament
• ▪The Institute of Chartered Accountants of India (ICAI) has advocated for a comprehensive law to regulate crypto issuance, trading, and custody
• ▪India was ranked first in Chainalysis' 2025 Global Crypto Adoption Index

Offshore exchange risks

• ▪In February, a member of parliament stated that about 73% of India's crypto trading volume had shifted to foreign exchanges
• ▪Rupee-denominated peer-to-peer trades also make it harder for authorities to track taxable income
• ▪The tax department warned that transactions on offshore exchanges and in private wallets make it difficult to identify owners and recover taxes

Stablecoin regulatory concerns

• ▪The RBI warns that foreign-backed stablecoins pose a threat to India's domestic monetary sovereignty
• ▪The RBI is opposed to both foreign currency-pegged and rupee-pegged stablecoins
• ▪The central bank believes rupee-backed stablecoins could reduce government revenue from issuing currency and create financial stability risks during market stress