Tax authorities, meanwhile, are concerned about widespread underreporting. In the financial year ended March 2023, fewer than a quarter of the 645,000 individuals who transacted in crypto actually declared those gains on their tax returns.
Transactions executed on offshore exchanges and peer-to-peer platforms, especially those denominated in rupees, remain difficult to track, trace and tax.
Indian crypto investors have been operating in a regulatory grey zone since the Supreme Court struck down the RBI’s 2018 ban. It is neither outright illegal nor clearly regulated. A 2021 draft bill to ban private cryptocurrencies was never presented and policy discussions have been repeatedly delayed.
While the government has spoken of balancing innovation with risk management, the latest internal documents suggest key agencies are still not ready to embrace digital assets.
India’s reluctance can partly be explained by its heavy dependence on energy imports and persistent current account deficits. The fragility of this position was recently exposed when tensions with Iran drove oil prices higher, inflating the energy import bill and pushing the rupee to record lows. Authorities are concerned that widespread crypto adoption could accelerate capital outflows, bypassing traditional banking channels and worsening the external deficit.