Introduction
With the Union Budget 2026 on the horizon, Indian authorities are feeling the heat to rethink their stringent cryptocurrency taxation policies. As substantial amounts of trading activity flow offshore, there is mounting concern over the accompanying loss of tax revenue and inadequate regulatory control. A recent study from KoinX reveals that a staggering $6.1 billion (approx. ₹51,252 crore) in cryptocurrency transactions, about 72.67%, takes place on foreign platforms, pushing only 27.33% of trading volume through local exchanges.
Current Taxation Landscape
As Finance Minister Nirmala Sitharaman gears up for her historic ninth budget presentation this Sunday, expectations are high within the crypto community for a reconsideration of the existing tax system. Stakeholders have criticized the present regime for driving domestic trading volumes down and pushing users towards international exchanges, often accessed via VPNs. Although India is leading global rankings in grassroots cryptocurrency adoption, according to Chainalysis, its heavy-handed tax policies create a regulatory environment that is lacking in clarity compared to the well-defined frameworks emerging in other Asian nations.
“India’s virtual digital asset (VDA) landscape is at a crossroads. Adoption is rising, but the current tax scheme creates obstacles for individual traders by imposing taxes on transactions without accounting for losses, resulting in a friction-filled environment that undermines fairness,” remarked Ashish Singhal, co-founder of CoinSwitch, to Decrypt.
Industry Demands
In anticipation of the upcoming budget, industry leaders are advocating for various adjustments. These requests largely revolve around three core areas: implementing reasonable tax reductions, introducing a regulatory framework for the sector, and facilitating the adoption of blockchain technology, both regulated and unregulated. Dilip Chenoy, Chairman of Bharat Web3 Association, expressed to Decrypt the necessity for reduced Tax Deducted at Source (TDS) and the establishment of loss set-off provisions.
Impact of Current Tax Policies
The taxation situation dramatically shifted in February 2022 when the government applied a rigid 30% tax on crypto earnings without any allowances for losses or exemptions. As noted by Sitharaman during her 2022 budget address, aside from the acquisition cost, no deductions for expenses or allowances are accepted when calculating crypto income. Additionally, if cryptocurrencies are gifted, they are subject to tax at the recipient’s end, and losses cannot be used against other income.
The repercussions of this tax model have been severe, particularly for high-frequency traders and liquidity providers, who find their operations unsustainable under the imposed 1% TDS rate. Further amplifying these tax burdens, changes made in the 2025 Union Budget allowed for retrospective audits of transactions dating back four years, and serious penalties of up to 70% were introduced for undisclosed gains.
Public Sentiment
A recent survey by CoinSwitch illustrates widespread discontent with the current tax structure, revealing that nearly 66% of the 5,000 respondents found the taxation regime unfair, with 53% categorizing it as “very unfair.” With 80% calling for changes in the upcoming budget, a strong majority support reducing the current tax rate, while many advocate for loss set-off abilities and a decrease in TDS.
Singhal proposed a reduction in TDS from 1% to 0.01% as a mechanism to boost liquidity and ease compliance, along with increasing the TDS threshold to protect small investors. CA Sonu Jain from 9Point Capital highlighted that the existing tax policy has failed to meet its goals of effectively tracking transactions and curbing speculation. Instead, it has led to a significant shift towards offshore trading platforms, which elude Indian regulators.
Future Outlook
Moreover, Jain emphasized that due to the current framework, compliant taxpayers are experiencing increased scrutiny and enforcement actions, leading to distrust among law-abiding investors. He advocates for a fair tax and regulatory structure that fosters cooperation and trust between taxpayers and revenue authorities.
As for the industry outlook, Aishwary Gupta from Polygon Labs insists a balance between policy innovation and regulatory safeguards is essential. He echoed Singhal’s sentiment regarding the need for TDS reduction and the review of the current flat 30% tax on crypto gains to align it with traditional assets like stocks and mutual funds.
Beyond taxation, Gupta argued that clarity in regulations is paramount, suggesting that India should look to support stablecoin transactions and asset tokenization within existing financial frameworks.
Conclusion
Recent discussions with parliamentary finance committees have revealed concerns about enforcing regulations in an environment of borderless digital assets and pseudonymous addresses, compounded by transactions occurring outside conventional banking channels, as reported by Times of India. Officials are wary of decentralization and privacy-oriented systems, reflecting a collective stance between the Finance Ministry and the Income Tax Department to curtail external exchanges.
In contrast to India’s tough regulations, other global economies and Asian jurisdictions such as Japan and Hong Kong are adopting structured licensing frameworks to draw in digital asset enterprises. Recognizing these global shifts, India’s Economic Affairs Secretary Ajay Seth has indicated that the country is reevaluating its cryptocurrency policies.
As the Union Budget 2026 approaches, the stakes are high. While approximately $5.2 million (₹437.43 crores) has been collected in crypto taxes thus far, a lack of substantial regulatory frameworks risks relegating India to a mere recipient of crypto-related activity rather than a pioneering architect. The crypto industry remains cautiously optimistic that the government will address these systemic issues and devise a balanced approach that harmonizes revenue generation with investor protection and supports the growth of domestic crypto markets.
