Summary of this article
RBI raises crypto concerns as India awaits clearer digital asset regulations.
Tax department flags challenges in tracking offshore crypto transactions and evasion risks.
India’s crypto market grows despite uncertainty over future regulatory framework.
The Reserve Bank of India (RBI) has reiterated concerns over cryptocurrencies and suggested that a policy approach leaning towards prohibition may be needed amid growing concerns over financial stability and associated risks.
Government Agencies Seek Stricter Crypto Measures
According to government documents reviewed by Reuters, “key Indian agencies favour tighter curbs on virtual digital assets (VDAs)”. However, the government has not yet taken a final decision on whether to ban cryptocurrencies or introduce a regulatory framework for the sector.
Incidentally, the Income Tax Department has also highlighted difficulties in monitoring transactions conducted through overseas crypto platforms. According to the department, such activities can be difficult to track, raising concerns around tax compliance and possible evasion risks.
Documents from May and June also show that the RBI wants banks and financial institutions to be restricted from holding, trading or gaining exposure to crypto assets and privately issued Stablecoins. The central bank has said that such measures could help prevent risks from spreading across the financial system.
Other countries have also adopted different approaches towards cryptocurrencies. Japan and Singapore have moved towards regulating digital assets, whereas China has prohibited crypto-related activities. Elsewhere, policy changes in the US have increased expectations of wider cryptocurrency adoption, particularly for Stablecoins.
India’s Crypto Regulation Status
Cryptocurrencies continue to operate in a regulatory grey area in India. The Supreme Court in 2018 overturned RBI restrictions which had prevented banks from providing services to crypto-related businesses.
The proposed 2021 bill which aimed to ban private cryptocurrencies did not move forward in Parliament. The government has continued to work on a policy framework for VDAs while trying to balance innovation with concerns around consumer protection, financial stability and monetary sovereignty.
In earlier internal discussions, the Union Ministry of Finance, after consultations with the RBI, supported limited regulatory clarity for virtual assets. The ministry had argued that existing tax rules and other measures had helped reduce some risks associated with cryptocurrencies.
Despite regulatory uncertainty, cryptocurrency trading continues to grow in India. India has nearly 39 million crypto traders who held around $2.10 billion worth of digital assets at the end of May, according to Income Tax Department estimates.
At present, gains from VDAs are taxed at 30 per cent in India, while specified crypto transactions attract a 1 per cent deduction of tax at source (TDS). A comprehensive regulatory framework for cryptocurrencies is still awaited.
