Central bank favours prohibition-oriented approach as authorities examine risks linked to digital assets, offshore exchanges and financial stability

India’s cryptocurrency debate has entered another critical phase, with the Reserve Bank of India (RBI) once again raising concerns over risks associated with virtual digital assets and suggesting that a policy approach leaning towards stricter restrictions may be required.

Internal government discussions reviewed by news agencies indicate that key financial authorities remain cautious about allowing cryptocurrencies to become part of the mainstream financial system. The RBI has repeatedly highlighted concerns related to monetary stability, consumer protection, financial risks and the possibility of digital assets being used for activities such as money laundering and tax avoidance.

Although cryptocurrencies continue to be traded in India, the sector remains without a dedicated regulatory framework. The country has maintained a cautious stance since the Supreme Court of India cryptocurrency banking restriction judgment removed restrictions that had prevented banks from providing services to crypto-related businesses.

A proposed law to prohibit private cryptocurrencies was discussed in 2021 but was never introduced in Parliament. Since then, the government has delayed a final decision, stating that any policy must consider innovation, investor protection and financial stability.

RBI Raises Concerns Over Crypto Exposure in Banking System

The central bank has argued that financial institutions should avoid direct exposure to cryptocurrencies and privately issued stablecoins to prevent possible risks spreading through the banking system.

According to officials familiar with the RBI’s position, the central bank believes keeping cryptocurrencies outside the regulated financial ecosystem would reduce potential threats to monetary policy and financial stability.

The RBI has also expressed concerns about stablecoins, particularly those linked to foreign currencies. Officials believe such digital currencies could impact India’s monetary independence if they gain widespread adoption.

Tax Authorities Warn About Crypto Reporting Challenges

India’s tax department has highlighted difficulties in tracking cryptocurrency transactions, especially those conducted through overseas exchanges and private digital wallets.

Officials have identified cases where investors allegedly failed to accurately disclose crypto holdings and profits in income tax filings.

The department has pointed out that peer-to-peer transactions and offshore platforms make it challenging to identify actual owners of digital assets and collect applicable taxes.

India currently imposes a 30% tax on income from cryptocurrency transfers, along with additional compliance requirements, but authorities believe enforcement remains complicated due to the decentralised nature of blockchain-based assets.

Global Crypto Adoption Creates Policy Challenge for India

The global cryptocurrency environment has changed significantly in recent years, with several countries moving towards regulated adoption.

Countries such as Japan and Singapore have introduced frameworks aimed at monitoring and regulating digital assets, while some nations have chosen stricter restrictions.

Meanwhile, policy changes in the United States, particularly around stablecoins, have increased expectations of broader institutional acceptance of cryptocurrencies.

India faces the challenge of balancing technological innovation with concerns over financial risks.

Crypto Market Continues to Grow Despite Regulatory Uncertainty

Despite the lack of a clear regulatory framework, cryptocurrency trading continues to attract Indian investors.

Estimates suggest that millions of Indians hold digital assets worth billions of dollars. However, regulators remain concerned that rapid growth without adequate oversight could create risks for investors and the wider financial system.

The government is expected to continue consultations before finalising its long-term approach toward cryptocurrencies.

For investors, the key focus remains regulatory clarity, as future policy decisions could significantly influence the growth and structure of India’s digital asset market.