RBI and Tax Department Raise Concerns Over Unregulated Crypto Trading
The Reserve Bank of India (RBI) has reiterated its support for a cryptocurrency policy that leans towards prohibition, while the nation's tax authority has cautioned that trading through offshore exchanges remains difficult to monitor, according to official documents reviewed by The Tribune. The tax department estimates that as of the end of May, there were over 39 million cryptocurrency dealers in India holding approximately USD 2.1 billion in digital assets, despite the lack of clear regulatory guidelines.
Government Agencies Push for Stricter Virtual Asset Rules
Although the government has not yet implemented a formal policy to prohibit or control virtual digital assets, the documents reveal that key government agencies desire to impose stricter restrictions on them. India has permitted cryptocurrencies to exist in a grey area since a 2018 Supreme Court ruling overturned RBI's earlier circular that effectively outlawed cryptocurrencies by barring banks from dealing with crypto exchanges.
Delayed Draft Policy and Parliamentary Inaction
A draft discussion paper on the subject has been continually postponed, and a 2021 draft law to outlaw private cryptocurrencies was never presented in Parliament. The government has deferred enacting a formal policy on virtual assets, stating that any strategy must defend financial stability, monetary sovereignty, and consumer losses while balancing innovation with risk management.
Finance Ministry's Internal Discussions on Regulatory Clarity
After consulting with the RBI, India's finance ministry supported limited regulatory clarity for virtual assets in internal discussions held in September. The ministry argued that the asset class's risk factors had been mitigated by existing tax and other legislation, such as the 30% tax on crypto gains and 1% tax deducted at source (TDS) introduced in 2022.
Growing Financial Stability Risks from Unregulated Trading
According to the documents, key authorities are increasingly worried about the rising risk to the nation's financial stability as cryptocurrencies continue to be traded without regulations. The tax department flagged that offshore exchanges are particularly difficult to monitor, creating a significant gap in oversight.
Global Context: US, China, and Other Jurisdictions
These domestic concerns come amid evolving global regulatory landscapes. In the United States, regulatory developments supporting the wider use of stablecoins have fueled anticipation of further adoption. Conversely, China has completely outlawed the usage of cryptocurrency tokens, while nations like Singapore and Japan have taken steps to regulate the sector within their jurisdictions.
India's approach remains cautious, with policymakers weighing the need for innovation against the imperatives of financial stability and consumer protection. The RBI's consistent stance favoring prohibition, combined with the tax department's warning about unmonitored holdings, suggests that stricter measures may be on the horizon, even as the government has yet to finalize a comprehensive policy framework.
