India's central bank has reportedly once again urged the government to take a tougher approach to cryptocurrencies, proposing a policy that would ban the digital asset.
The matter was revealed through internal government documents obtained by Reuters, indicating that authorities are increasingly concerned about the impact of cryptocurrencies on the country's financial stability.
While India has yet to introduce specific laws to ban or regulate cryptocurrencies, several key government agencies are seen supporting tighter controls.
Since India's Supreme Court overturned restrictions on cryptocurrencies in 2018, digital assets have remained in a "grey zone" without a clear official policy.
The Reserve Bank of India (RBI) believes that banks and financial institutions should not be allowed to own, trade or have exposure to cryptocurrencies and stablecoins issued by private parties.
According to the central bank, the move is important to avoid the risk of contagion to the financial system in the event of a major crash in the crypto market.
In addition, the RBI also expressed concerns about the use of stablecoins.
Stablecoins backed by foreign currencies are feared to undermine India's financial sovereignty, while stablecoins backed by rupees have the potential to reduce government revenue from currency issuance and increase risks to the financial system when markets are under stress.
Meanwhile, India's tax department has found that many investors are still failing to report crypto holdings and profits in their tax returns.
Of the estimated 645,000 individuals who carried out crypto transactions for the financial year ending March 2023, less than a quarter reportedly declared the activity to authorities.
According to the department, transactions carried out through overseas exchanges, private digital wallets and direct transactions between individuals make it difficult for the government to identify the true owners of assets and collect taxes.
India currently levies a 30% tax on profits from cryptocurrency investments.
Despite still facing policy uncertainty, India is estimated to have nearly 39 million crypto investors with digital asset holdings worth around $2.1 billion as of the end of May.
This situation shows that the use of cryptocurrencies continues to grow even though the government has not yet decided on the exact direction of the industry.
For now, the Indian government has not announced whether it will ban cryptocurrencies completely or introduce a new regulatory framework.
However, the latest stance of the central bank and the tax department indicates that the country is increasingly inclined to tighten control over the digital asset industry in the future.
