As India gears up for the Union Budget 2026, the cryptocurrency industry is intensifying its calls for a more favorable tax regime, advocating for a reset of the current 30% tax on crypto gains and a reduction in the 1% Tax Deducted at Source (TDS) on crypto transactions. Industry players argue that the existing tax structure is discouraging investors and pushing trading activity to offshore platforms.
The current tax framework for Virtual Digital Assets (VDAs), which includes cryptocurrencies, NFTs, and digital tokens, was introduced in the Union Budget 2022. It comprises a flat 30% tax on gains from VDAs and a 1% TDS on each transaction. While the government aimed to create a transaction trail and bring digital assets under a defined fiscal framework, the industry views the existing framework as relatively stringent.
One of the primary concerns raised by the crypto industry is the impact of the 1% TDS. While manageable for long-term investors, this deduction can lock up capital for active traders and liquidity providers operating on thin margins. Market-making and arbitrage strategies, which often operate at margins of 0.01 to 0.05 percent per trade, become difficult to sustain under the current TDS regime. Industry data suggests that trading volumes on Indian exchanges significantly declined after the introduction of TDS in July 2022, with an estimated ₹3.5 lakh crore of Indian crypto trading activity shifting to offshore platforms between July 2022 and July 2023.
In light of these challenges, industry leaders are urging the government to consider a recalibration of the VDA taxation, particularly the 1% TDS. A reduction in this rate could improve liquidity, reduce friction, and increase onshore participation without compromising traceability or oversight. Some experts have suggested reducing the TDS to as low as 0.01%.
Furthermore, the industry is advocating for aligning the 30% tax on VDA gains with other asset classes and allowing for loss set-offs. Currently, losses from crypto transactions cannot be set off or carried forward, even within the same asset class, creating an asymmetric tax structure. Allowing limited loss set-offs within the asset class would align crypto taxation more closely with established principles of fair taxation.
Besides tax reforms, the crypto sector is also seeking clear regulatory guidelines to boost investor confidence and encourage onshore participation. Industry stakeholders argue that the lack of clear regulations limits the sector's full potential, pushing innovation and liquidity offshore. A clear and consistent framework for digital assets would strengthen trust among investors, institutions, and market participants, enabling businesses to operate responsibly within well-defined boundaries. Sumit Gupta, Co-Founder of CoinDCX, suggests a structured consultation process and equal compliance standards for domestic and offshore players to support industry growth.
Raj Karkara, Chief Operating Officer at ZebPay, emphasized that the Union Budget 2026 comes at a pivotal moment for India's crypto ecosystem. He called for a review of the flat 30% tax on VDA gains, aligned with other asset classes, to create a more balanced investment environment. Nischal Shetty, Founder of WazirX, stated that a few policy tweaks in the upcoming Budget 2026 could go a long way in ensuring capital does not flow out of the country and instead thrives within the country without sacrificing on regulatory requirements.
As India's crypto ecosystem looks forward to 2026, stakeholders are hopeful that the year will bring positive changes, especially regarding regulatory clarity and taxation. Despite India leading in global crypto adoption, the lack of clear regulations around crypto is hurting the industry. By addressing these concerns in the upcoming budget, the government can foster innovation, encourage compliance, and unlock the full potential of India's crypto sector.
