Finance minister Arun Jaitley has announced the plan in his annual budget speech as he moves to stop people using the digital currency - such as Bitcoin - in an effort to decrease off-the-books transactions being made in the country.
As reported by The Register, he spoke about the move towards the ban in his annual budget speech, as he sought to explain the reason behind the decision.
He said: "The Government does not consider crypto-currencies legal tender or coin and will take all measures to eliminate use of these cryptoassets in financing illegitimate activities or as part of the payment system."
That said, Mr. Jaitley did add that the government has plans to use blockchain technology as part of its own aims to boost a future digital economy.
The form of digital currency has proven popular across the world, with rapper 50 Cent reportedly making millions out of bitcoin before it became truly popular.
In a since-deleted Instagram post, he referred to the original TMZ story as he added: "Not Bad for a kid from South Side, I'm so proud of me... I'm a keep it real. I forgot I did that s**t. (sic)"