Tax authorities, meanwhile, are concerned about widespread underreporting. In the fiscal year ending March 2023, fewer than a quarter of the 645,000 people who traded crypto actually declared those gains on their tax returns.
Transactions conducted 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 gray area since the Supreme Court struck down the RBI’s ban in 2018. It is neither outright 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, recent internal documents suggest key agencies are still not ready to embrace digital assets.
India’s reluctance can partly be explained by the country’s heavy dependence on energy imports and persistent current account deficits. The fragility of this position was recently exposed when tensions with Iran drove up oil prices, increased the energy import bill and pushed the rupee to record lows. Authorities are concerned that widespread crypto adoption could accelerate capital outflows, bypass traditional banking channels and worsen the external deficit.
