Reuters said it had been told by a senior government official that the proposed law would make it a criminal act to possess, issue, mine, trade or transfer any digital asset.
The report comes at a time when bitcoin, the best known of the cryptocurrencies, has hit record highs, crossing US$50,000 for the first time recently.
The rise in bitcoin's value came after electric vehicle manufacturer Tesla said it had bought bitcoin worth US$1.5 billion.
India had announced in January that it was looking at a ban of private digital currencies like bitcoin but creating the infrastructure for issuing an official cryptocurrency.
The measure will give current holders of cryptocurrencies in India up to six months to convert their assets, or face penalties.
If the law does come into effect, it would make India the first major country to impse such a ban. China does not allow mining or trading in cryptocurrencies, but allows its citizens to possess the assets.