Cryptocurrency: Cryptocurrency could face a ban; why did only 25 percent of people disclose investment details?

Uncertainty surrounding the future of cryptocurrency in India has intensified after the Reserve Bank of India (RBI) and the Income Tax Department adopted a stricter stance on digital assets. Government documents indicate that policymakers are increasingly considering tougher restrictions as concerns grow over financial stability, tax compliance, and the rapid expansion of crypto trading.

RBI Reiterates Call for Tough Restrictions on Cryptocurrency

The Reserve Bank of India has once again warned that cryptocurrencies pose significant risks to the country's financial system.

According to the central bank, banks and financial institutions should be prohibited from holding, trading, or maintaining exposure to cryptocurrencies and privately issued stablecoins. The RBI believes such measures are necessary to safeguard India's banking system from potential financial instability.

Although Indian banks are currently not legally barred from facilitating crypto-related transactions, most major lenders have maintained a cautious approach due to regulatory uncertainty.

Income Tax Department Flags Low Crypto Disclosure

The Income Tax Department has also raised serious concerns over tax compliance among cryptocurrency investors.

According to official data:

India is estimated to have nearly 3.9 crore cryptocurrency investors.

Their combined digital asset holdings are valued at around $2.1 billion.

During the financial year ending March 2023, approximately 6.45 lakh individuals carried out cryptocurrency transactions.

However, less than 25% of these taxpayers correctly disclosed their crypto investments in their income tax returns.

The low disclosure rate has strengthened the government's concerns over tax evasion and inadequate reporting of virtual digital assets.

Stablecoins Under Fresh Scrutiny

The RBI has also highlighted risks associated with foreign currency-backed stablecoins.

According to the central bank, allowing widespread use of stablecoins could undermine India's financial sovereignty by reducing reliance on the domestic currency. It may also make crypto transactions harder to monitor, limiting the government's ability to track gains and collect taxes.

Currently, profits earned from cryptocurrency transactions in India are taxed at a 30% rate, making compliance a key focus for tax authorities.

Regulatory Pressure Likely to Increase

The latest observations from both the RBI and the Income Tax Department suggest that the government's approach toward cryptocurrency is becoming increasingly stringent. Policymakers remain concerned about financial stability, investor protection, and tax compliance as crypto adoption continues to grow without a comprehensive regulatory framework.

Any future decision regarding stricter regulations or additional restrictions is expected to have a significant impact on India's rapidly expanding cryptocurrency ecosystem.