RBI backs crypto ban, tax department warns of evasion risks, documents show
Internal government documents show the Reserve Bank of India (RBI) continues to favour a cryptocurrency policy "leaning towards prohibition"
The RBI has flagged risks to financial stability and monetary sovereignty from crypto assets and stablecoins, including foreign and rupee-pegged stablecoins
The central bank has opposed allowing banks and regulated financial institutions any exposure to crypto assets or privately issued stablecoins, citing contagion risk to the broader financial system
Tax authorities, in separate documents, flagged under-reporting of crypto gains and difficulty tracking offshore and peer-to-peer transactions as evasion risks
The stance comes even as India has an estimated 39 million crypto investors holding roughly $2.1 billion in digital assets as of May 2026, and as a long-awaited government report on crypto policy is expected to be tabled in Parliament during the ongoing session
Legal Status of Cryptocurrency in India — From the 2018 RBI Circular to Today
Cryptocurrency in India occupies a regulatory grey zone: it is not banned outright, not recognised as legal tender, but is taxed. In April 2018, the RBI issued a circular directing regulated entities (banks, NBFCs) to stop providing services to businesses dealing in virtual currencies. This was challenged and struck down by the Supreme Court in Internet and Mobile Association of India (IAMAI) v. RBI (2020), which held the blanket banking ban disproportionate and violative of Article 19(1)(g) (freedom to practise any profession, trade, or business), applying the proportionality test even while accepting RBI's legitimate concerns about money laundering and consumer protection.
Key Details
- RBI banking-services circular: April 2018; struck down by Supreme Court, IAMAI v. RBI (4 March 2020)
- No standalone law currently regulates or bans cryptocurrency trading in India; a "Cryptocurrency and Regulation of Official Digital Currency Bill" has been under consideration for several years without enactment
- Since the 2020 verdict, crypto trading has been technically legal, but the RBI has continued to publicly and administratively favour prohibition rather than regulation
The current internal documents show RBI's institutional position has not shifted materially since 2018 — it continues to push for prohibition through indirect means (barring bank exposure) even though a direct legislative ban has not been enacted and the 2020 judgment limits blanket banking restrictions.
Taxation and Anti-Money-Laundering Framework for Virtual Digital Assets (VDAs)
Even without a dedicated regulatory law, India has built a fiscal and anti-money-laundering framework around cryptocurrency. The Finance Act, 2022 inserted Section 115BBH into the Income Tax Act, imposing a flat 30% tax (plus surcharge and cess) on income from transfer of Virtual Digital Assets, with no deduction allowed except the cost of acquisition, and no set-off of losses against other income. Section 194S mandates 1% TDS on VDA transactions above prescribed thresholds. Separately, in March 2023, the government brought VDA service providers (exchanges, custodians, wallet providers) under the Prevention of Money Laundering Act (PMLA), 2002, as "reporting entities" obligated to register with, and report suspicious transactions to, the Financial Intelligence Unit-India (FIU-IND).
Key Details
- Section 115BBH (Finance Act, 2022): flat 30% tax on VDA transfer income; no loss set-off/carry-forward permitted
- Section 194S: 1% TDS on VDA transactions above specified thresholds
- PMLA notification (7 March 2023): VDA service providers classified as "reporting entities" under PMLA, requiring FIU-IND registration
- FIU-IND has issued show-cause notices/compliance actions against several offshore exchanges for operating without registration
The tax department's evasion concerns referenced in the documents relate directly to this existing framework — under-reporting of Section 115BBH-taxable gains and difficulty tracking offshore/peer-to-peer transfers that fall outside PMLA-registered exchanges' visibility.
Stablecoins, Monetary Sovereignty, and the Digital Rupee (CBDC)
Stablecoins are cryptocurrencies designed to maintain a stable value by pegging to a reserve asset (e.g., US dollar or, hypothetically, the rupee). RBI's objection to stablecoins — especially rupee-pegged ones — centres on "seigniorage" (the government's exclusive privilege and revenue from issuing currency) and monetary sovereignty: privately-issued stablecoins could function as a parallel currency, undermining the central bank's monopoly over money creation and its ability to conduct monetary policy. This concern is closely linked to RBI's own Central Bank Digital Currency (CBDC), the e₹ (digital rupee), launched in pilot form in December 2022, which RBI frames as the sovereign, regulated alternative to private digital currencies.
Key Details
- Stablecoins: crypto assets pegged to a reserve asset (fiat currency, commodity, or basket) to minimise price volatility
- RBI's e₹ (digital rupee) CBDC: wholesale pilot launched November 2022, retail pilot launched December 2022
- RBI's stated concerns: loss of seigniorage, financial contagion risk, capital outflow/external deficit pressure from unregulated private stablecoins
RBI's aversion to stablecoins in the reviewed documents reflects the institutional view that private, especially rupee-pegged, stablecoins compete with and could undermine the CBDC and the central bank's monetary sovereignty.
- RBI banking-access circular on crypto: April 2018; struck down by Supreme Court in IAMAI v. RBI, 4 March 2020
- Income Tax Act Section 115BBH: 30% flat tax on VDA transfer income (Finance Act, 2022)
- Section 194S: 1% TDS on VDA transactions above threshold
- VDAs brought under PMLA as reporting entities: 7 March 2023
- Estimated Indian crypto investors: ~39 million; estimated holdings: ~$2.1 billion (as of May 2026)
- RBI's CBDC (e₹) retail pilot launched: December 2022