The regulatory battle over cryptocurrencies in India is entering a decisive phase. The Reserve Bank of India (RBI) has once again taken a hardline stance, officially supporting a policy of "prohibition with a bias toward total exclusion" of digital assets from the financial system. Simultaneously, the country's tax authority is raising alarms: the scale of tax evasion in the crypto sphere is reaching threatening proportions, and the use of offshore exchanges is making this process virtually uncontrollable.
The Central Bank's Position: Isolation as the Only Method of Protection
According to documents I have reviewed, the RBI insists that banks and financial institutions should be categorically prohibited from owning, trading, or providing access to cryptocurrencies and stablecoins. The regulator's main argument is the risk of "contagion" to the entire financial system. In the bank's leadership's view, the only way to contain this risk is to completely remove cryptocurrencies from the perimeter of the regulated financial ecosystem.
Stablecoins are a particular concern. The RBI believes that tokens pegged to foreign currencies pose a direct threat to the country's sovereignty. At the same time, according to the regulator, rupee-pegged stablecoins could undermine seigniorage—the state's revenue from issuing national currency—and create risks to financial stability during periods of market stress.
Tax Authority Reports Failure: 75% of Traders Have Gone Underground
Data from the tax department paints an even more alarming picture. Of the 645,000 individuals who conducted cryptocurrency transactions in the fiscal year ending March 2023, less than 25% reported these operations in their tax returns. This means the vast majority of market participants are operating outside the legal framework.
The tax service directly points to the key problem: transactions through foreign exchanges and private wallets make it virtually impossible to identify the real owners of assets and collect taxes. The situation is exacerbated by high price volatility and the lack of uniform standards for valuing crypto assets for tax purposes. In response, India's Ministry of Corporate Affairs is already studying the possibility of introducing accounting standards for virtual digital assets.
Currently, the country has approximately 39 million crypto traders who, according to tax authority estimates, hold digital assets worth around $2.1 billion. Meanwhile, global exchanges such as Binance and Coinbase can legally operate in India only after registering with a government body.
Analyst's Comment: India is following the path of China, not the US or Singapore. However, a complete ban in a country with 39 million active users is not just a regulatory decision but a socio-economic challenge. Given the low level of tax discipline and the high popularity of cryptocurrencies among the population, the effectiveness of such a ban remains highly questionable. More likely, we will witness a further shift of the market into a deep "gray" sector, which will only complicate oversight and tax collection.