India’s Central Bank Rejects Cryptocurrency Legalization

The Reserve Bank of India (RBI) maintains a firm 'no' on crypto legalization, citing systemic risks and money laundering concerns during a recent hearing.

The statement was made during a hearing before the Parliamentary Standing Committee on Finance, signaling that New Delhi remains far from adopting a more liberal regulatory regime for the sector.

Central Bank Rejects Cryptocurrency Legalization

During a parliamentary consultation on July 2, representatives from the Reserve Bank of India (RBI) reiterated that the institution does not support granting legal status to cryptocurrencies. According to the central bank, digital assets could pose systemic risks to the financial system, facilitate cross-border money laundering, and be utilized for financing illegal activities, including drug trafficking.

Bhartruhari Mahtab, Chairman of the Parliamentary Committee on Finance, stated after the meeting that the RBI’s response regarding potential legalization was a “categorical no.” The institution is maintaining its position even as interest in cryptocurrencies continues to grow in India, which remains one of the largest markets for digital assets globally.

The central bank justified its cautious approach by citing examples from other nations. These include China and Qatar, which have imposed virtually total bans on cryptocurrencies, as well as European jurisdictions that have introduced significantly stricter regulatory regimes. The RBI argues such an approach is necessary to mitigate risks to both the financial system and consumers.

Lack of Specific Law Hinders Regulation

Despite the central bank’s firm stance, India still lacks a dedicated law to govern cryptocurrencies. Instead, authorities rely on existing statutes to take action against alleged violations.

In late June, India’s Enforcement Directorate launched an investigation into five crypto payment companies in Bengaluru. Allegations suggest that over 2,500 crore rupees, or approximately $300 million, were moved abroad via stablecoin transfers, bypassing the traditional banking system.

Since cryptocurrencies are recognized as neither legal tender nor foreign currency, investigators are applying the provisions of the Foreign Exchange Management Act (FEMA) of 1999. This creates a regulatory vacuum where institutions rely more on enforcement than on clearly defined market rules.

This ambiguous framework remains a major challenge for the domestic crypto industry. While the central bank pushes for the most restrictive regime possible, industry representatives and professional organizations are calling for specific legislation to provide clarity for investors and businesses.

Tax Regime Remains Among the World’s Strictest

Alongside regulatory uncertainty, India maintains one of the harshest tax policies for cryptocurrencies. Profits from virtual digital assets are subject to a flat 30% tax, with a 1% Tax Deducted at Source (TDS) applied to every transaction.

Furthermore, investors are prohibited from offsetting losses in one cryptocurrency against gains in another. This significantly increases the tax burden and makes active trading considerably more expensive.

For now, the parliamentary hearing has not resulted in concrete legislative changes, and no final decision has been reached regarding the sector’s future.

The divide between institutions remains significant. While the RBI continues to demand maximum restrictions on cryptocurrencies, industry experts urge the creation of a thorough regulatory framework rather than a policy based primarily on prohibitions and enforcement. Analysts expect the process to remain lengthy, meaning regulatory uncertainty will continue to be a primary risk for the Indian crypto market.