India’s uneasy, decade-long relationship with cryptocurrency has entered a new and consequential chapter. Internal government documents dated May and June 2026, reviewed by Reuters, show the Reserve Bank of India (RBI) reasserting one of its clearest positions yet: the country’s crypto policy should be “leaning towards prohibition.” The central bank has gone further than its usual cautionary rhetoric, explicitly recommending that banks and financial institutions be barred from holding, trading, or gaining any exposure to crypto assets and privately issued stablecoins.
This isn’t a new position for the RBI — the central bank has voiced skepticism about digital assets for well over a decade. But the timing, specificity, and interagency backing behind this latest push make it worth unpacking in detail. In this article, we break down exactly what the RBI is proposing, why it’s proposing it, how India got to this point, what the rest of the government thinks, and what it could mean for the country’s crypto ecosystem going forward.
What the RBI Actually Said
According to the government documents reviewed by Reuters, the RBI’s core recommendations are straightforward and severe:
- A policy stance “leaning towards prohibition.” The central bank has not called for an explicit, absolute ban through fresh legislation, but has recommended that the government’s overall posture toward virtual digital assets should tilt firmly toward restriction rather than accommodation.
- A blanket ban on bank exposure to crypto and stablecoins. The RBI wants banks and other regulated financial institutions barred from holding, trading, or gaining exposure to both cryptocurrencies and privately issued stablecoins — a move explicitly designed to prevent contagion risk from spilling into the mainstream banking system.
- Specific concern about stablecoins. The RBI flagged stablecoins as a distinct and serious risk category, arguing that foreign-currency-backed stablecoins threaten India’s monetary sovereignty, while rupee-backed stablecoins could erode the government’s seigniorage income (the revenue a government earns from issuing its own currency) and introduce financial-stability risks during periods of market stress.
Notably, none of this constitutes a formal, enacted policy — no law currently prohibits Indian banks from dealing with the crypto sector. But as multiple reports have pointed out, most major Indian lenders have already been keeping a wide berth from crypto-related businesses for years, precisely because of the RBI’s repeated informal warnings. A source familiar with the RBI’s internal thinking told Reuters that the central bank’s underlying goal is simple: keep cryptocurrencies entirely outside the regulated financial system.
Crucially, the RBI isn’t operating alone on this. India’s Income Tax Department has separately warned that transactions routed through offshore crypto exchanges are extremely difficult to monitor, creating a growing risk of tax evasion — effectively adding the tax authority’s institutional weight behind the RBI’s containment push. Together, these two agencies represent a meaningful consolidation of view among some of India’s most powerful financial regulators, even as the broader government has yet to commit to a final policy.
Why This Matters: The Scale of India’s Crypto Market
It would be easy to dismiss this as bureaucratic positioning if the numbers involved were small. They aren’t. Despite years of regulatory ambiguity, high taxation, and repeated warnings, India’s crypto market has grown enormous. Tax department estimates put the number of Indian crypto traders at nearly 39 million, collectively holding around $2.1 billion in digital assets as of the end of May 2026. Other industry estimates, which count broader definitions of “crypto users” including those who have simply registered on an exchange at some point, have placed India’s crypto user base considerably higher — into the hundreds of millions by some counts, making it one of the largest crypto markets in the world by user count, even if trading volumes lag behind more crypto-friendly jurisdictions.
That scale is precisely what worries the RBI. A market of that size, sitting largely outside formal banking channels and increasingly migrating to offshore exchanges, represents a growing blind spot for regulators tasked with safeguarding financial stability, preventing money laundering, and protecting retail investors.
A Decade of Ambiguity: How India Got Here
To understand why the RBI is once again pushing hard on prohibition, it helps to look at the long and genuinely chaotic history of India’s crypto policy — a story of warnings, bans, court reversals, and taxation used as a substitute for actual regulation.
2013: The First Warnings
The RBI issued its first public advisory on virtual currencies as early as 2013, cautioning users about the legal, financial, and security risks of dealing in Bitcoin and similar assets. At the time, these warnings had little practical effect — India’s crypto market was still nascent.
April 2018: The Banking Ban
The RBI’s first real regulatory action came in April 2018, when it issued a circular directing all RBI-regulated entities — banks, NBFCs, and payment system providers — to stop providing banking services to any individual or business dealing in cryptocurrencies. The effect was immediate and severe: exchanges lost access to banking rails almost overnight, liquidity dried up, and much of the trading activity that survived pushed into peer-to-peer channels or offshore.
March 2020: The Supreme Court Strikes It Down
The Internet and Mobile Association of India (IAMAI) challenged the RBI’s circular in court, and in March 2020, the Supreme Court struck it down in the landmark IAMAI v. RBI judgment, ruling that the central bank’s blanket restriction was disproportionate given that it hadn’t demonstrated actual, quantifiable harm to regulated entities from crypto-related dealings. Banking access was restored, and major exchanges — WazirX, CoinDCX, CoinSwitch, and ZebPay among them — saw trading volumes surge as the ecosystem rebuilt itself.
2021: A Ban Bill That Never Arrived
In the aftermath of the Supreme Court ruling, the government drafted a bill aimed at banning private cryptocurrencies outright while creating a legal framework for an RBI-issued central bank digital currency. That bill was listed for introduction in Parliament but was never formally tabled, and it has effectively remained shelved ever since — a recurring pattern of the government signaling intent to legislate without following through.
2022: Taxation as De Facto Regulation
Rather than legislating a ban, the government took a different approach in its 2022 Union Budget: it chose to tax crypto into submission rather than prohibit it outright. The Finance Act introduced Section 115BBH, classifying crypto and other digital assets as Virtual Digital Assets (VDAs) and imposing a flat 30% tax on all gains from their transfer, with no deduction allowed for expenses other than the cost of acquisition, and — critically — no ability to offset losses against gains from other VDAs or any other source of income. Alongside this, Section 194S introduced a 1% Tax Deducted at Source (TDS) on virtually every crypto transaction above a modest threshold, designed less as a revenue measure and more as a transaction-tracking mechanism.
The effect was exactly what many observers predicted: trading volumes on registered Indian exchanges fell sharply, while a meaningful share of activity migrated to offshore platforms that don’t deduct India’s TDS — precisely the dynamic that the Income Tax Department is now citing as a major enforcement headache.
2023: Anti-Money-Laundering Rules Arrive
In 2023, the government brought virtual digital asset service providers — exchanges, wallet providers, and related businesses — under the Prevention of Money Laundering Act (PMLA), requiring mandatory registration with India’s Financial Intelligence Unit (FIU-IND), along with KYC checks, transaction monitoring, and suspicious-activity reporting obligations. Non-compliant platforms, including some large global exchanges, were blocked from operating in India until they registered; several — including Binance — later returned to the Indian market after registering and, in some cases, paying penalties for prior non-compliance.
2025: A Legal Label Without a Legal Framework
Most recently, VDAs were folded into the broader Income Tax Act framework via the Income Tax (No. 2) Bill, 2025, formalizing their tax treatment further. But even with this, India still has no dedicated, comprehensive crypto law governing exchange licensing, investor protection, custody requirements, or market conduct. Crypto in India today is, in the words of several legal commentators, “taxed but unregulated” — a genuinely unusual legal position in which the state extracts significant tax revenue from an asset class it has never formally recognized or legally protected.
This is the fractured, decade-long backdrop against which the RBI’s May–June 2026 documents should be read. The central bank isn’t proposing something new so much as reasserting, with renewed institutional backing, a position it has held consistently since at least 2018 — one that the courts have already partially rejected once before.
The RBI’s Core Arguments for Prohibition
Beyond the headline recommendation, the RBI has laid out a fairly detailed set of arguments — reportedly presented before a parliamentary panel reviewing the issue — for why containment, rather than regulation, is the right approach.
Contagion and financial stability risk. The central bank’s primary concern is straightforward: if regulated banks and financial institutions are permitted to hold or transact in crypto assets, a sharp downturn in crypto markets — which have historically been prone to extreme volatility and periodic collapses — could transmit stress directly into the formal banking system. Keeping banks entirely walled off from crypto exposure is, in the RBI’s view, the simplest and most reliable way to prevent that transmission channel from ever forming.
Loss of monetary control. Cryptocurrencies are, by design, privately issued and operate outside the RBI’s control. The central bank has argued that widespread adoption undermines its ability to manage monetary policy effectively, and could exacerbate capital outflows and worsen India’s external account position during periods of macroeconomic stress.
Illicit finance risk. The RBI has also raised concerns about the potential use of crypto assets for terror financing and narcotics-related money laundering, arguing that the pseudonymous, cross-border nature of many crypto transactions makes them difficult for Indian regulators to trace or govern, particularly when assets are held on offshore platforms with no meaningful Indian regulatory footprint.
International precedent for restriction. The RBI has pointed to jurisdictions like China and Qatar, which have banned crypto activity outright, as models it considers relevant, while noting that even the more permissive European jurisdictions only allow crypto activity under stringent regulatory frameworks — arguing that India’s grey-zone status, with high taxation but no formal protections, is the worst of both worlds.
Stablecoins as a distinct and urgent threat. Perhaps the sharpest edge of the RBI’s current position concerns stablecoins specifically. RBI officials — including Governor Sanjay Malhotra and Deputy Governor T. Rabi Sankar — have repeatedly and publicly flagged stablecoins as a particular danger. The core argument has two parts: foreign-currency-pegged stablecoins (like the dollar-backed USDT and USDC, which together account for the overwhelming majority of global stablecoin market capitalization) risk driving a form of unofficial “dollarization” in India, weakening the rupee’s role in the domestic economy and complicating monetary policy transmission. Meanwhile, even a hypothetical rupee-backed stablecoin issued by a private entity could reduce the government’s seigniorage revenue — the profit earned from issuing currency — while creating new financial-stability risks if such a token faced a loss of confidence or a run during a period of market stress. India’s Chief Economic Adviser has echoed similar concerns publicly, warning that the growing global footprint of dollar stablecoins carries real challenges for monetary policy, monetary transmission, and seigniorage benefits for countries like India.
Not Everyone in Government Agrees
What makes this story more complicated — and genuinely uncertain in its outcome — is that the RBI’s prohibition-leaning stance is not unanimous across the Indian government.
The Ministry of Finance, after consultations with the RBI, has previously signaled a preference for providing at least limited regulatory clarity for virtual digital assets, relying on existing taxation and other laws to manage risk rather than pursuing outright prohibition. This reflects a genuine institutional tension: the RBI is focused on financial-stability and monetary-sovereignty risks, while parts of the finance ministry appear more attentive to the reality that a de facto ban has simply pushed trading activity offshore, out of India’s tax net and regulatory reach entirely, rather than eliminating it.
The Institute of Chartered Accountants of India (ICAI), which also appeared before the parliamentary panel reviewing the issue, took a notably different position from the RBI — backing a clearer legal framework for virtual digital assets rather than a containment strategy.
The Securities and Exchange Board of India (SEBI) adds a further layer of complexity. SEBI has signaled it could step in to regulate certain virtual digital assets if they are structured or function like securities — an approach that doesn’t fit neatly into the RBI’s blanket-containment model, and effectively means India’s crypto oversight could end up split across multiple regulators with different philosophies, rather than housed under a single, coherent framework.
There’s also a vocal political counter-narrative emerging. Member of Parliament Raghav Chadha has publicly pushed back on the prohibition-leaning approach, pointing out that roughly 73% of India’s crypto trading volume has already shifted to foreign exchanges, with an estimated 120 million Indian users now active on offshore platforms — well outside the reach of India’s tax authorities, AML rules, or investor protections. His argument, echoed by several industry voices, is that years of punitive taxation and regulatory hostility haven’t reduced Indian crypto participation; they’ve simply exported it beyond the government’s visibility, undermining exactly the kind of oversight the RBI says it wants.
This is, in many ways, the central paradox of India’s crypto policy: the RBI’s preferred approach — keep crypto out of the regulated financial system entirely — may be structurally incompatible with the tax department’s stated goal of tracking and taxing crypto activity more effectively, since the harder India makes it to transact through regulated domestic channels, the more activity flows to unregulated offshore ones.
The RBI’s Preferred Alternative: CBDC and the Digital Rupee
The RBI’s opposition to private crypto and stablecoins is paired with consistent, active promotion of its own alternative: the Central Bank Digital Currency, known in India as the e-Rupee or digital rupee. Governor Malhotra has been explicit on this point, arguing publicly that CBDCs carry major advantages over stablecoins precisely because they preserve the “singleness” and integrity of money under sovereign control, and has urged central banks globally to prioritize CBDCs over private stablecoin alternatives — particularly for cross-border payments, where he has argued CBDCs are best positioned to eventually operate.
Domestically, however, the picture is more complicated. The RBI’s own governor has acknowledged that the e-Rupee is “not a substitute for cash for now,” and adoption has been sluggish since the retail pilot launched in December 2022 — daily transaction volumes reportedly crashed from an artificially inflated peak (driven partly by banks paying portions of employee salaries in CBDC to hit RBI-set targets) down to a small fraction of that figure within about eighteen months. By contrast, India’s UPI real-time payments system — which the RBI itself has pointed to as evidence that India doesn’t need crypto or stablecoins for efficient domestic payments — now processes roughly 20 billion transactions a month.
More recently, the RBI has begun routing e-Rupee adoption through channels citizens can’t easily opt out of: government welfare and subsidy disbursement. Pilots run in partnership with the World Bank and state governments have begun distributing portions of India’s roughly $80 billion welfare system through programmable digital rupee tokens — restricting how and where recipients can spend the funds — in states including Maharashtra and Gujarat.
Separately, India has also seen early movement toward a domestically issued, rupee-backed stablecoin concept — the Asset Reserve Certificate (ARC), developed by Polygon Labs and Anq, designed to be backed 1:1 by Indian government securities and intended to operate alongside, rather than compete with, the RBI’s own CBDC. The stated purpose is to prevent capital from flowing into dollar-denominated stablecoins by offering a rupee-denominated private-sector alternative, while still channeling ultimate settlement through the RBI’s digital rupee infrastructure — an approach that suggests even within India’s cautious establishment, there’s recognition that stablecoin technology itself may have a legitimate role, so long as it’s rupee-anchored and tightly controlled.
How India’s Crypto Tax Regime Works Today
Regardless of how the prohibition debate resolves, it’s worth understanding the tax and compliance framework crypto traders currently operate under in India, since this is the primary mechanism through which the government exercises control today, in the absence of dedicated crypto legislation.
- A flat 30% tax on all VDA gains, under Section 115BBH, regardless of income bracket or holding period — there is no long-term capital gains benefit available for crypto, unlike equities or real estate.
- A 4% health and education cess on top of that 30%, bringing the effective tax rate to roughly 31.2% to 34% depending on the taxpayer’s total income.
- A 1% TDS under Section 194S on crypto transfers above prescribed thresholds, deducted automatically by registered exchanges and designed primarily as a transaction-tracking mechanism rather than a revenue tool.
- No loss set-off. Losses on one crypto asset cannot be offset against gains on another crypto asset, let alone against income from salary, business, or other capital gains — and losses cannot be carried forward to future years.
- Mandatory FIU-IND registration for any exchange or VDA service provider operating in India, along with KYC, AML compliance, and suspicious-transaction reporting obligations under PMLA.
- NFTs and other digital assets fall under the same VDA classification and tax treatment as cryptocurrencies.
This regime has generated meaningful tax revenue and created a paper trail for domestic transactions, but as the government’s own internal documents now acknowledge, it has done little to curb participation — it has simply redirected a large share of trading activity to offshore exchanges the government has limited visibility into.
How India Compares Globally
India’s prohibition-leaning stance stands in increasingly sharp contrast to the direction much of the rest of the world has taken. The United States passed dedicated stablecoin legislation in 2025 (the GENIUS Act), providing a formal regulatory pathway for dollar-backed stablecoins rather than restricting them. Japan and Singapore have both moved toward structured regulation of crypto assets rather than prohibition, building licensing regimes that allow exchanges and issuers to operate within defined rules. China remains one of the few major economies to have banned crypto activity outright, a position India’s RBI has referenced approvingly, alongside smaller jurisdictions like Qatar.
The global stablecoin market itself has grown substantially, crossing roughly $300–320 billion in market capitalization by early-to-mid 2026, with dollar-pegged tokens like Tether’s USDT accounting for the majority of that figure — precisely the kind of foreign-currency-denominated growth that has the RBI concerned about monetary sovereignty risk for countries like India that don’t control the issuance of those tokens.
What Happens Next — and What It Means for Banks, Fintechs, and Investors
For now, nothing has formally changed. There is no new law, no fresh RBI circular, and no confirmed government decision — the May–June 2026 documents represent the RBI’s institutional position going into ongoing interagency and parliamentary deliberations, not an enacted policy. A parliamentary committee reviewing the issue is expected to issue its own report on these deliberations, which could shape whatever legislative or regulatory action follows.
That said, the practical reality for market participants is unlikely to shift dramatically in the near term, for a simple reason: Indian banks have already been avoiding direct crypto exposure for years, following the RBI’s repeated informal warnings even without a formal prohibition in place. The RBI’s renewed push may simply cement that existing caution rather than create a dramatically new operating environment — though a formal directive, if it materializes, would remove any remaining ambiguity and could affect areas like banking access for crypto exchanges themselves, payment rail access for on-ramping and off-ramping funds, and any nascent efforts by regulated financial institutions to explore blockchain-based products.
For fintech and banking-technology companies, the practical takeaway is that India’s regulatory posture toward crypto and stablecoins remains genuinely unsettled, shaped by a real and ongoing tug-of-war between the RBI’s containment instinct, the finance ministry’s more pragmatic tax-and-track approach, SEBI’s securities-based angle, and a growing political counter-argument that prohibition has simply pushed activity — and tax revenue — offshore. Any company operating in or adjacent to this space should expect continued regulatory ambiguity in the near term, watch closely for the parliamentary committee’s forthcoming report, and pay particular attention to how the RBI’s stance on stablecoins evolves, since that appears to be the sharpest and most actively contested edge of the current debate.
Frequently Asked Questions
Is cryptocurrency legal in India right now? Yes. Cryptocurrency is legal to buy, hold, and trade in India. The Supreme Court confirmed this in its March 2020 ruling striking down the RBI’s 2018 banking ban. Crypto is not legal tender, but it is recognized as a taxable Virtual Digital Asset under the Income Tax Act.
Has the RBI banned crypto? No. As of mid-2026, there is no law or RBI circular prohibiting individuals from holding or trading crypto, and no formal rule barring banks from dealing with the sector either. What exists is a strong, repeated RBI recommendation — most recently reasserted in documents from May and June 2026 — that policy should “lean towards prohibition,” combined with years of informal warnings that have led most major banks to avoid crypto-related business voluntarily.
Why does the RBI want banks barred from crypto and stablecoin exposure specifically? The RBI’s central concern is contagion risk — the possibility that volatility or a collapse in crypto markets could spread into the regulated banking system if banks are permitted to hold or transact in these assets. It has extended this concern specifically to privately issued stablecoins, arguing they pose additional threats to monetary sovereignty and financial stability.
What is the difference between the RBI’s view and the government’s tax approach? The RBI has consistently favored keeping crypto outside the regulated financial system entirely. The Ministry of Finance, by contrast, has generally favored a tax-and-monitor approach — applying a 30% tax and 1% TDS on transactions — relying on existing law rather than a new prohibition. The tension between these two approaches, and the fact that heavy taxation has pushed significant trading volume to offshore exchanges, is a central unresolved issue in India’s crypto policy.
How is India’s stance on stablecoins different from its stance on crypto generally? While the RBI is cautious about cryptocurrencies broadly, it has singled out stablecoins for even sharper criticism, given their potential to be used as everyday payment instruments rather than purely speculative assets. The RBI’s preferred alternative is its own Central Bank Digital Currency (the e-Rupee), which it has actively promoted both domestically and to other central banks globally.
What should crypto exchanges and fintech companies operating in India expect next? Continued regulatory uncertainty in the near term. A parliamentary panel reviewing the issue is expected to release a report on its deliberations, and the outcome will likely hinge on which institutional view — the RBI’s containment approach, the finance ministry’s tax-based approach, or SEBI’s securities-based approach — carries the most weight in shaping any eventual legislation or formal policy.
This article reflects publicly reported government documents and statements as of July 2026. India’s crypto policy remains under active deliberation, and the regulatory landscape described here may change as new legislation, RBI directives, or court rulings are issued. This content is provided for informational purposes and should not be construed as legal, tax, or investment advice.
