Crypto vs Taxman: India’s Budget 2026 Sparks Fresh Fight Over TDS and Digital Asset Rules

India Budget 2026 Could Reshape Crypto Taxes as Industry Pushes for Clarity

As India prepares for the Union Budget 2026, optimism is building across the country’s digital asset industry that long-awaited reforms may finally arrive. After several years of strict taxation and regulatory uncertainty, policymakers are signaling that the focus this time may shift from punitive measures toward clearer rules and a more balanced framework for virtual digital assets.

Discussions around India Budget 2026 crypto tax policy have intensified as investors, exchanges, and blockchain companies argue that the current system has discouraged domestic participation and pushed trading activity offshore. Industry leaders say meaningful reform could help India retain capital, improve transparency, and strengthen oversight without stifling innovation.

How Crypto Is Taxed in India Today

India formally recognized cryptocurrencies as Virtual Digital Assets (VDAs) in the Union Budget 2022. While the move brought legal recognition, it also introduced one of the world’s strictest crypto tax regimes.

Source: Xpost

Under the current framework, any profits from VDA transactions are taxed at a flat rate of 30 percent, regardless of an individual’s income level. In addition, a one percent Tax Deducted at Source (TDS) is applied to every transaction, not just profits. Losses from crypto trading cannot be offset against gains or carried forward, a restriction that does not apply to most other asset classes.

This structure means that a small retail trader and a high-net-worth investor face the same tax burden, even if their income profiles differ significantly. In Budget 2025, the government chose to maintain these rules unchanged, despite sustained lobbying from the industry.

Why the Current System Is Under Pressure

Market participants argue that the one percent TDS has had an outsized impact on trading activity. Because the tax is applied to every transaction, frequent traders face significant capital lock-ups, reducing liquidity and making active trading economically unviable on Indian platforms.

As a result, many users have migrated to overseas exchanges or informal peer-to-peer channels, complicating enforcement and reducing the government’s ability to track transactions. Industry representatives say this outcome runs counter to the original goal of improving transparency and compliance.

According to executives at Indian exchanges, the combination of high taxes and rigid rules has slowed innovation and discouraged startups from building domestically, even as global interest in blockchain technology continues to rise.

Industry Leaders Call for a Reset

Prominent voices within the sector see Budget 2026 as a critical inflection point. CoinDCX co-founder and CEO Sumit Gupta has described the upcoming budget as an opportunity for India to “reset” its approach to digital assets.

Gupta and other industry leaders have outlined three core reforms they believe would restore activity on Indian platforms without compromising regulatory oversight. First, they have urged the government to reduce the TDS rate from one percent to 0.01 percent, a level they say would allow trading volumes to recover while still providing transaction visibility.

Second, they advocate replacing the flat 30 percent tax with income slab-based taxation, aligning crypto gains with the treatment of equities and other investments. Third, they are pushing for the ability to offset losses against gains, a standard feature across most financial markets.

Supporters argue that these changes would encourage users to remain within the regulated Indian ecosystem, making compliance easier rather than harder.

What Exchange Data Reveals

Data shared by CoinDCX offers insight into the scale of crypto participation in India despite regulatory headwinds. The exchange reports more than 21 million registered users and says it has already contributed over ₹13 crore in TDS payments to the government under the current rules.

CoinDCX also maintains reserves exceeding $500 million and operates an investor protection fund, highlighting efforts by domestic platforms to build trust and stability. Industry analysts note that India remains one of the world’s fastest-growing markets for digital asset adoption, even under restrictive conditions.

In 2025, participation in systematic investment plans linked to digital assets reportedly rose by nearly 60 percent, reflecting sustained interest among retail investors. Advocates say a more balanced tax regime could reduce gray-market activity and bring a larger share of this participation into the formal economy.

Government’s Cautious Stance

Despite rising pressure for reform, the government continues to approach digital assets with caution. In parliamentary discussions earlier this year, both the Reserve Bank of India and the Income Tax Department reiterated concerns about the borderless nature of cryptocurrencies, their potential use in illicit finance, and the risks they pose to financial stability.

Tax authorities have increased monitoring by leveraging data from Financial Intelligence Unit-registered exchanges and issuing notices to users where reported income does not align with transaction records. Officials argue that strict oversight is necessary to prevent misuse, even if some reforms are introduced.

This dual approach suggests that while the government may be open to rationalizing taxes, it is unlikely to relax surveillance or compliance requirements in the near term.

Why Budget 2026 Is a Turning Point

Policy analysts say the decisions taken in Budget 2026 could shape the trajectory of India’s digital asset sector for years to come. A move toward clearer definitions, fairer taxation, and consistent enforcement could help the country transition from a restrictive stance to structured growth.

Failure to address industry concerns, on the other hand, may accelerate capital flight and limit India’s influence in shaping global crypto standards. With several major economies refining their digital asset frameworks, India risks falling behind if it does not adapt.

At the same time, policymakers face the challenge of balancing innovation with consumer protection, particularly in a market with millions of first-time investors.

The Broader Economic Context

India’s digital economy has expanded rapidly over the past decade, driven by fintech adoption, mobile payments, and a young, tech-savvy population. Blockchain and digital assets are increasingly viewed as part of this broader transformation rather than a fringe activity.

Supporters of reform argue that treating crypto purely as a speculative instrument ignores its potential role in financial inclusion, cross-border payments, and technology development. They contend that clear rules would allow legitimate use cases to flourish while giving regulators stronger tools to address risks.

What Investors Are Watching

As Budget 2026 approaches, investors are closely monitoring signals from policymakers, including pre-budget consultations and statements from finance ministry officials. Any indication of TDS reduction or tax rationalization could quickly influence market sentiment and trading volumes.

Exchanges and startups are also watching for clarity on compliance requirements, reporting standards, and the long-term regulatory vision for digital assets in India.

Conclusion

India Budget 2026 represents a critical moment for the country’s crypto ecosystem. After years of strict taxation and regulatory ambiguity, there is cautious optimism that the government may introduce reforms aimed at clarity rather than control.

Whether the budget delivers meaningful change or maintains the status quo will determine whether India can harness its position as a global leader in digital adoption or continue to see activity migrate beyond its borders. For now, the industry, investors, and policymakers alike are waiting to see if Budget 2026 marks the beginning of a new chapter for crypto in India.

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Writer @Erlin
Erlin is an experienced crypto writer who loves to explore the intersection of blockchain technology and financial markets. She regularly provides insights into the latest trends and innovations in the digital currency space.
 
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