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