India's Reserve Bank told a parliamentary committee on July 2, 2026, that cryptocurrencies should not receive legal status and that prohibition remains a viable policy option. RBI Deputy Governor Rohit Jain and Executive Director P. Vasudevan presented a containment strategy to the Standing Commi...
"India taxes VDAs like they are legal, but regulates them like they are illegal. Let us not fear innovation, let us regulate it. Prohibition is not protection — regulation is protection." — Raghav Chadha, Member of Parliament, Rajya Sabha (Budget 2026-27 debate)
India's Reserve Bank told a parliamentary committee on July 2, 2026, that cryptocurrencies should not receive legal status and that prohibition remains a viable policy option. RBI Deputy Governor Rohit Jain and Executive Director P. Vasudevan presented a containment strategy to the Standing Committee on Finance's 7th sitting, recommending that banks and regulated financial institutions be barred entirely from dealing in crypto assets and privately issued stablecoins.
The testimony arrives as India simultaneously hosts 39 million crypto investors holding approximately $2.1 billion in digital assets, records $340 billion in annual crypto inflows equal to 9% of GDP according to an OECD report, and watches 73% of its trading volume migrate to offshore platforms. The Standing Committee's final report, titled "A Study on Virtual Digital Assets (VDAs) and Way Forward," is expected to be tabled during the Monsoon Session after a concluding hearing with the Department of Economic Affairs on July 15.
The contradiction at the center of India's crypto policy is quantifiable: the government collects tax revenue from an asset class it may ultimately prohibit, while punitive taxation drives the taxable activity offshore faster than enforcement can follow it.
At the Standing Committee on Finance's 7th sitting on July 2, 2026, the RBI laid out its position in unambiguous terms. Deputy Governor Rohit Jain and Executive Director P. Vasudevan argued for a containment strategy that would ring-fence the formal financial system from crypto exposure. The central bank's recommendations included:
The RBI cited risks including terror financing, narcotics trafficking, online fraud, illegal gambling networks, and unaccounted money transfers. The central bank positioned prohibition as a recognized policy option under international frameworks, referencing global precedents.
This is not a new stance. The RBI attempted a banking ban in 2018, which India's Supreme Court struck down in March 2020. The current approach is more measured in form — containment rather than outright ban — but the economic effect would be similar: severing crypto from India's banking rails.
India's crypto tax framework, introduced in Union Budget 2022-23, remains among the most punitive globally:
| Provision | Rate / Detail | |-----------|---------------| | Capital gains tax (Section 115BBH) | 30% flat, no loss offset or carry-forward | | TDS on transfers (Section 194S) | 1% on every transaction above Rs 50,000 | | GST on platform fees | 18% | | Late reporting penalty (from April 2026) | Rs 200 per day | | Incorrect filing penalty (from April 2026) | Rs 50,000 |
The Central Board of Direct Taxes (CBDT) disclosed during a January 7, 2026 sitting that approximately Rs 888.82 crore (~$105 million) in undisclosed income linked to VDA transactions had been identified, with notices sent to more than 44,000 taxpayers.
Compliance rates tell a starker story. Fewer than 25% of the roughly 645,000 individuals who conducted crypto transactions in the financial year ending March 2023 reported them on their tax returns. The gap between transactions occurring and taxes collected continues to widen.
The structural contradiction is evident: India taxes crypto at rates that assume full legitimacy — a 30% capital gains rate implies the asset class is recognized and taxable — while the RBI simultaneously argues for prohibition. MP Raghav Chadha's characterization during the Budget 2026-27 debate captured this precisely: the government taxes VDAs as if they are legal but regulates them as if they are illegal.
The punitive tax regime has produced measurable capital flight. According to data presented in Parliament:
The domestic exchange ecosystem has contracted accordingly. WazirX, once India's largest exchange by volume, suffered a $234.9 million hack in July 2024 and is attempting a restructuring. CoinDCX and CoinSwitch operate at a fraction of their pre-2022 liquidity. CoinSwitch's data shows spot trading volumes surging 114% year-on-year in 2025, with new trader registrations up 27%, but this growth operates from a severely diminished base.
In May 2026, the Parliamentary Standing Committee took the unusual step of formally summoning India's three largest crypto exchanges to testify about why so much of the country's crypto economy was leaving.
The destinations are predictable: Dubai's free zones offer minimal restrictions, full foreign ownership, and regulatory flexibility. Singapore imposes no capital gains tax on crypto. Both jurisdictions have built dedicated licensing regimes to attract exactly the companies India's tax framework is pushing away.
The OECD's Asia Capital Markets Report 2026 recorded approximately $340 billion in crypto asset inflows into India between June 2024 and June 2025, equivalent to nearly 9% of GDP. The figure was the highest among major Asian economies in absolute terms.
A critical caveat: the $340 billion reflects trading, transfers, and DeFi activity tracked by blockchain analytics firm Chainalysis, not net balance-of-payments capital flows. It does not prove $340 billion in foreign capital entered India. Stablecoins, blockchain-based transfers, and on-chain DeFi activity are the primary drivers of the figure.
Nevertheless, the scale underscores the disconnect between India's regulatory ambiguity and the actual volume of on-chain activity linked to Indian users. A market generating activity equivalent to 9% of GDP is, by any measure, systemically significant — and currently operates in a regulatory vacuum.
The RBI's opposition to private crypto exists alongside its promotion of the digital rupee (e-rupee), the central bank's own CBDC. The e-rupee has reached approximately 10 million users as of 2026, with cumulative transactions totaling $3.6 billion since its December 2022 launch.
For context, India's Unified Payments Interface (UPI) processes approximately $300 billion in transactions per month. The e-rupee's cumulative three-and-a-half-year transaction volume is equivalent to roughly 1.2% of a single month of UPI activity.
The RBI is now routing portions of India's roughly $80 billion welfare system through the e-rupee in about 10 pilot programs. In Maharashtra's Phulenagar village, farmers receive programmable subsidies covering up to 80% of drip-irrigation costs, redeemable only at approved vendors. A Gujarat pilot targets onboarding all 7.5 million households eligible for subsidized food.
The RBI's 2025-26 annual report indicated plans to widen domestic CBDC pilots and pursue cross-border CBDC pilots with select use cases in 2026-27. The strategic focus has shifted from transaction volume to testing specific functionalities: offline payments via NFC and programmable government transfers.
The implicit logic is clear: the RBI views the e-rupee as the state-controlled alternative to private crypto, offering programmability and traceability without the speculative and privacy characteristics the central bank opposes. Whether 10 million CBDC users can absorb the demand currently served by 39 million crypto investors trading across offshore platforms remains an open question.
The Standing Committee's report is approaching finalization:
The Union government has not disclosed which direction it favors. India's 2021 draft bill to ban private cryptocurrencies was never introduced in Parliament, and policy decisions have been repeatedly deferred. The Finance Ministry, which oversees both the CBDT (which collects crypto taxes) and the Department of Economic Affairs (which shapes policy), has not publicly reconciled the contradiction between taxation and potential prohibition.
The FIU (Financial Intelligence Unit) has taken a parallel track, blocking access to nine offshore exchanges including Binance, KuCoin, and others for operating without registration — an enforcement action that implicitly acknowledges these platforms serve Indian users.
India's crypto policy is approaching a decision point that has been deferred for five years. The RBI's position is internally consistent: it views private crypto as a threat to monetary sovereignty and financial stability, and its containment strategy logically follows from those premises. The question is whether a prohibition-oriented policy is implementable in a market where $340 billion in annual on-chain activity is already occurring, 39 million investors are already participating, and 73% of volume has already moved beyond the reach of domestic enforcement.
The Standing Committee's report, expected during the Monsoon Session, will be the first formal parliamentary recommendation on India's crypto policy. Whatever it recommends, the structural tension between taxation-as-legitimacy and regulation-as-prohibition will need resolution. India currently occupies both positions simultaneously, and the economic data suggests this ambiguity is itself a policy — one that drives capital offshore while collecting diminishing returns from the activity that remains.