India's central bank wants to ban crypto: tax authority raises alarm

India’s central bank reiterates its stance: cryptocurrency should preferably be banned. Government documents seen by Reuters show that the Reserve Bank of India is pushing for stricter policy and wants to ban banks and financial institutions from touching crypto. At the same time, the Indian tax authority warns of the risks of trading via foreign exchanges.

Banks must exit the crypto market

In the documents, India’s central bank states that crypto policy should “lean towards a ban”. Specifically, the bank advises prohibiting banks and financial institutions from holding, trading in, or having any exposure to crypto assets and privately issued stablecoins. The aim is to limit the risk of contagion to the mainstream financial system.

Although the Indian government has not yet established an official ban or regulatory framework, the internal documents show that leading government agencies clearly favour stricter restrictions on digital assets. The central bank thus reiterates a stance it has long held, but now gives it added weight through formal government papers.

Tax evasion via offshore exchanges difficult to trace

India’s tax authority is also raising the alarm. According to the authority, transactions via foreign exchanges and private wallets make it nearly impossible to identify who is behind a transaction and to recover taxes. Peer-to-peer trading in Indian rupees is particularly problematic, as taxable income is barely traceable in such cases.

India already has one of the strictest tax regimes in the world when it comes to crypto. Profits on crypto transactions are taxed at 30%, and a 1% tax deducted at source applies to every transaction. Yet many users apparently manage to stay out of the authorities’ sight by trading via foreign platforms or direct peer-to-peer transactions. The tax authority views this as a growing problem that requires action.