New Delhi: India’s cryptocurrency policy remains undecided, but internal government documents reviewed by Reuters indicate that key authorities continue to favour tighter restrictions on digital assets. The Reserve Bank of India (RBI) has once again reiterated its long-standing view that the country’s cryptocurrency policy should lean towards prohibition, while the Income Tax Department has expressed concerns over the difficulty of monitoring transactions conducted through overseas crypto exchanges.
The documents suggest that although the Union government has not taken a final decision on whether to regulate or prohibit cryptocurrencies, major agencies remain concerned about the risks posed by virtual digital assets.
RBI reiterates restrictive stance
According to documents dated May and June, the RBI has maintained that India’s crypto policy should remain “leaning towards prohibition.”
The central bank believes banks and other regulated financial institutions should not be permitted to hold, trade or maintain exposure to cryptocurrencies or privately issued stablecoins.
The RBI has argued that such restrictions would minimise the risk of financial instability and prevent problems arising in the cryptocurrency sector from affecting the broader banking and financial system.
A source familiar with the RBI’s position told Reuters that the central bank continues to favour keeping cryptocurrencies outside India’s regulated financial system.
Although there is currently no law preventing Indian banks from dealing with cryptocurrency-related businesses, most major lenders have largely avoided the sector following repeated cautionary statements issued by the RBI.
Income Tax Department flags monitoring challenges
The Income Tax Department has also expressed concerns regarding cryptocurrency transactions carried out through offshore exchanges.
According to the documents, officials believe such transactions are difficult to track, making tax compliance monitoring more challenging and increasing the possibility of tax evasion.
The department estimates that nearly 39 million cryptocurrency traders in India collectively held digital assets worth around 2.1 billion US dollars at the end of May.
Government yet to finalise policy
India’s regulatory approach towards cryptocurrencies has remained uncertain for several years.
In 2020, the Supreme Court of India set aside an RBI circular that had effectively prevented banks from providing services to cryptocurrency businesses.
Since then, cryptocurrencies have continued to operate without a comprehensive regulatory framework.
The Union government had prepared a draft Bill in 2021 proposing a ban on private cryptocurrencies, but it was never introduced in Parliament. A discussion paper on cryptocurrency regulation has also been delayed multiple times.
The government has consistently maintained that any future policy should balance technological innovation with financial stability, consumer protection, monetary sovereignty and effective risk management.
Stablecoins remain a concern
The documents also show that the RBI continues to express concerns regarding stablecoins.
According to the central bank, stablecoins linked to foreign currencies could undermine India’s monetary sovereignty, while rupee-backed stablecoins could reduce government revenue from currency issuance and create financial stability risks during periods of market stress.
These concerns reinforce the RBI’s broader position that cryptocurrencies and related digital assets should remain outside the country’s regulated financial system until an appropriate policy framework is established.
Regulatory clarity still awaited
Reuters had earlier reported that internal discussions within the Ministry of Finance, after consultations with the RBI, had favoured providing limited regulatory clarity for virtual digital assets while relying on existing taxation provisions and other laws to mitigate risks.
However, the latest documents indicate that key government agencies continue to adopt a cautious approach, highlighting ongoing concerns over financial stability, taxation, consumer protection and regulatory oversight.
With no final decision yet announced, India’s cryptocurrency policy remains under consideration, leaving the future regulatory framework for digital assets uncertain.