RBI tells parliamentary panel that virtual digital assets like cryptocurrency a threat to economy

The Standing Committee on Finance held its 7th sitting on the subject "A Study on Virtual Digital Assets (VDAs) and Way Forward," with representatives of the...

What Happened

The Standing Committee on Finance held its 7th sitting on the subject "A Study on Virtual Digital Assets (VDAs) and Way Forward," with representatives of the Reserve Bank of India and the Institute of Chartered Accountants of India in attendance.
The Reserve Bank of India informed the parliamentary panel that virtual digital assets such as cryptocurrency pose a threat to India's developing economy and should not be legalised.
The central bank argued that legitimising crypto through regulation could allow the sector to become systemic, posing risks to financial stability, monetary sovereignty, and the integrity of India's payments infrastructure.
Concerns were raised around money laundering, investor protection, and the potential undermining of the monetary policy transmission mechanism.
The panel chairman noted that the RBI's own central bank digital currency (the digital rupee) has seen modest adoption compared to privately issued digital assets.
An estimated 72.7% of India's crypto trading volume has migrated to offshore platforms following domestic regulatory uncertainty.

Static Topic Bridges

Reserve Bank of India Act, 1934 — Monetary Functions

The Reserve Bank of India Act, 1934 is the foundational statute governing the RBI's constitution, functions, and powers. Under Section 22, the RBI has the sole right to issue bank notes in India; Section 26 declares those notes legal tender, guaranteed by the Central Government. The Monetary Policy Committee (MPC), introduced through the insertion of Section 45ZB via a 2016 amendment, is now the statutory body responsible for setting the benchmark policy interest rate (the repo rate). The MPC consists of six members — three from the RBI and three appointed by the Central Government — and is mandated to meet at least four times a year.

Section 22: Exclusive note-issuance authority vests in the RBI
Section 26: Bank notes are legal tender throughout India; only the Central Government, on the Central Board's recommendation, can withdraw legal tender status by Gazette notification
Section 45ZB (inserted 2016): Establishes the Monetary Policy Committee; fixes the inflation target regime
Current inflation target: 4% (±2%) as agreed between the RBI and the Government

Connection to this news: The RBI's core argument is that widespread crypto adoption would fragment monetary control — undermining Sections 22/26 by creating parallel exchange mediums outside the legal tender framework, and eroding the MPC's ability to transmit rate signals through the economy.

Parliamentary Standing Committees — Finance Committee

Parliamentary Standing Committees are permanent committees reconstituted annually. The Standing Committee on Finance is one of 24 Departmentally Related Standing Committees (DRSCs) established under the Rules of Procedure and Conduct of Business in Lok Sabha. It examines demands for grants, bills referred to it, and subjects related to the Ministry of Finance (including Department of Economic Affairs, Revenue, Financial Services, and DIPAM). The committee can summon officials, call for documents, and its reports are presented to both Houses of Parliament — though its recommendations are not binding on the government.

Composition: 31 members (21 from Lok Sabha, 10 from Rajya Sabha)
Term: One year; reconstituted after each general election cycle
Functions: Scrutinise budget demands, examine referred bills, conduct thematic studies (as in this VDA inquiry)
Reports are persuasive, not binding; the government must table an Action Taken Report

Connection to this news: The VDA review is a thematic study — one of the committee's "self-taken up" subjects — giving it a platform to shape future crypto legislation even before a formal bill is introduced in Parliament.

Virtual Digital Assets — Taxation and Regulatory Status in India

India currently lacks a comprehensive law governing the trading, exchange operation, or custody of virtual digital assets. However, the Finance Act 2022 inserted a specific tax regime: gains on VDA transfers are taxed at a flat 30% (Section 115BBH of the Income Tax Act), with a 1% Tax Deducted at Source (TDS) on transfers above a threshold (Section 194S). This framework provides revenue without granting VDAs legal tender status or legitimacy as a regulated financial product.

30% flat tax on VDA gains (no set-off of losses against other income)
1% TDS on VDA transfers (above ₹10,000 threshold; ₹50,000 for specified persons)
VDAs defined broadly in Section 2(47A) of the Income Tax Act to include crypto, NFTs, and any other digital asset notified by the government
No dedicated VDA law; no licensed exchange framework; no investor protection regime

Connection to this news: The tax-without-legalisation approach reflects the policy tension at the heart of the parliamentary inquiry — the government collects revenue from VDAs while the RBI argues that any further normalisation risks financial stability.

Central Bank Digital Currency (CBDC) — The Digital Rupee

A Central Bank Digital Currency (CBDC) is a digital form of a country's fiat currency issued directly by the central bank. Unlike cryptocurrencies, a CBDC is a liability of the central bank (not a private issuer), is legal tender, and is designed to coexist with — not replace — physical cash. The RBI launched its Digital Rupee (e₹) pilot in two forms: wholesale (e₹-W, for interbank settlement) in November 2022, and retail (e₹-R, for public use) in December 2022.

e₹-W pilot launched: 1 November 2022
e₹-R pilot launched: 1 December 2022
Operates via a token-based system distributed through participating commercial banks
Key design goals: programmability, offline functionality, financial inclusion

Connection to this news: The committee chairman's observation that the digital rupee is "not flourishing" undercuts one of the RBI's implicit alternatives to crypto — the state-backed digital asset — and raises questions about why a sovereign digital currency has struggled to gain traction against decentralised alternatives.

Key Facts & Data

Standing Committee on Finance 7th sitting: 2 July 2026
India's crypto tax rate on VDA gains: 30% flat (Finance Act 2022, Section 115BBH)
TDS on VDA transfers: 1% (Section 194S, Income Tax Act)
Share of India's crypto trading volume on offshore platforms: estimated 72.7%
RBI's digital rupee (e₹-R) retail pilot launched: December 2022
MPC mandate: maintain inflation at 4% (±2 percentage point band)
Section 45ZB of the RBI Act (2016 amendment): legal basis for the MPC