RBI Renews Crypto Ban Push as Tax Evasion Persists

India's central bank has restated its opposition to private cryptocurrencies. The Reserve Bank of India wants to keep licensed banks and financial firms away from any crypto-related business, according to confidential records reviewed by Reuters. The RBI argues that isolating crypto from the banking system would limit the risk of financial contagion.

The RBI also flagged concerns about stablecoins. Tokens backed by foreign currencies could undermine India's monetary independence, the central bank said. Rupee-denominated stablecoins, on the other hand, could cut into the central bank's currency issuance revenue and introduce new vulnerabilities.

Tax authorities are wrestling with a different problem. Less than 25% of the 645,000 cryptocurrency holders filed tax returns on their crypto transactions in the fiscal year that ended March 2023, the documents show. Foreign-based exchanges and peer-to-peer rupee trades make it hard to track ownership and taxable gains, revenue officials said. India taxes crypto profits at 30%.

The country still lacks a comprehensive crypto law. The Supreme Court struck down the RBI's 2018 banking ban in 2020. A 2021 draft bill that would have banned private cryptocurrencies never reached Parliament. A proposed policy document has been delayed repeatedly.

Despite the regulatory vacuum, India remains a large crypto market. Reuters reported that tax department estimates put the number of Indian crypto holders at about 39 million, with roughly $2.1 billion in digital assets, as of late May. The Ministry of Corporate Affairs is now working on accounting rules for virtual digital assets.