India's Reserve Bank has reasserted support for a crypto policy leaning towards prohibition, proposing to bar banks and financial institutions from holding, trading, or gaining exposure to crypto assets, according to government documents reviewed by Reuters on Wednesday. The central bank aims to keep cryptocurrencies outside the regulated financial system amid concerns over stablecoins and monetary sovereignty. India's tax department has identified widespread non-compliance, with fewer than a quarter of 645,000 individuals who conducted crypto transactions in the financial year ending March 2023 reporting them on tax returns.
RBI Proposes Ban on Financial Institution Crypto Exposure
The Reserve Bank of India said banks and financial institutions should be barred from holding, trading, or gaining exposure to crypto assets as part of measures to keep cryptocurrencies outside the regulated financial system, Reuters reported on Wednesday. The prohibition-leaning policy stance represents the central bank's continued position on restricting institutional participation in digital asset markets.
Central Bank Warns of Stablecoin Risks to Monetary Sovereignty
The RBI raised concerns over stablecoins in the government documents. The central bank warned that privately issued stablecoins backed by foreign currencies could pose risks to domestic monetary sovereignty. Rupee-backed stablecoins could reduce government revenue from issuing fiat currency and create financial stability risks during periods of market stress, according to the RBI's assessment.
Tax Department Identifies Widespread Crypto Transaction Underreporting
India's tax department identified instances of cryptocurrency holdings being misreported in income tax disclosures. The department found that fewer than a quarter of the 645,000 individuals who conducted crypto transactions in the financial year ending March 2023 reported them on their tax returns. Transactions routed through overseas exchanges and private wallets make it harder to identify beneficial owners and recover taxes, while rupee-denominated peer-to-peer transactions make taxable crypto income more difficult to track, according to the tax department.
India Maintains 39 Million Crypto Investors Despite Policy Uncertainty
India remains one of the largest crypto markets by user base despite the policy uncertainty. The country had nearly 39 million crypto investors holding about $2.1 billion in digital assets at the end of May, per tax department estimates cited by Reuters.
FAQ
What did India's central bank propose regarding financial institutions and crypto?
The Reserve Bank of India proposed that banks and financial institutions should be barred from holding, trading, or gaining exposure to crypto assets, according to government documents reviewed by Reuters on Wednesday. The central bank supports a crypto policy leaning towards prohibition to keep cryptocurrencies outside the regulated financial system.
How many crypto traders in India reported transactions on tax returns for the financial year ending March 2023?
Fewer than a quarter of the 645,000 individuals who conducted crypto transactions in the financial year ending March 2023 reported them on their tax returns, according to India's tax department findings in government documents reviewed by Reuters.
