The tax authorities are concerned about widespread under-declaration. In the fiscal year ending March 2023, less than a quarter of the 645,000 people who transacted in crypto actually reported those gains on their tax returns.
Transactions executed on offshore exchanges and peer-to-peer platforms, particularly those denominated in rupiah, remain difficult to track, trace and tax.
Indian crypto investors have been operating in a regulatory gray zone since the Supreme Court overturned 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 were repeatedly delayed.
While the government talks about balancing innovation and risk management, the latest internal documents suggest that major agencies are still not 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 recently exposed when tensions with Iran sent oil prices soaring, swelling energy import bills and pushing the rupee to record lows. Authorities fear that widespread crypto adoption will accelerate capital outflows, bypassing traditional banking channels and worsening the external deficit.
