India’s crypto industry pushes for major tax reset in Budget 2026

India’s crypto and Web3 sector is urging tax reforms in Budget 2026, saying the 30% VDA tax and 1% TDS have hurt domestic trading and pushed users offshore. The industry wants lower TDS, loss set-offs, and parity with other financial assets.

India’s rapidly expanding cryptocurrency and Web3 industry is mounting a coordinated push for sweeping tax reforms ahead of the Union Budget 2026. Four years after India introduced one of the world’s strictest tax frameworks for virtual digital assets (VDAs), industry leaders argue that the current regime is constraining growth, eroding onshore liquidity, and driving users and capital to offshore platforms.

As Finance Minister Nirmala Sitharaman prepares to unveil the budget, stakeholders across exchanges, startups, and blockchain ventures say the moment is pivotal. They believe policy recalibration now could help India reclaim lost economic activity, boost tax compliance, and strengthen its position in the global digital asset economy.

A Tax Framework Under Scrutiny

India’s VDA tax regime, announced in Budget 2022, introduced a flat 30% tax on crypto gains, a ban on setting off losses against other income, and a 1% Tax Deducted at Source (TDS) on every transaction above specified thresholds. While the measures were designed to increase traceability and formalise the market, their long-term effects have been contentious.

Industry participants say the 1% TDS, in particular, has had a chilling effect on domestic trading volumes. Because the tax is deducted on the gross transaction value rather than profits, active traders and market makers face a constant capital lock-up. Over time, this has reduced liquidity on Indian exchanges and widened price spreads, making domestic platforms less competitive compared with global counterparts.

Executives argue that this has unintentionally encouraged users to shift to offshore exchanges that do not impose similar transaction-level friction. As trading migrates outside India’s regulatory perimeter, the intended benefits of monitoring and tax collection may be undermined.

Core Demands from the Industry

A broad consensus has emerged within India’s crypto ecosystem regarding the reforms needed to revive onshore activity.

1. Reduction in TDS:

Industry leaders are calling for the 1% TDS to be reduced drastically, with suggestions ranging from 0.01% to 0.1%. They argue that such a rate would still allow authorities to track transactions while easing liquidity pressures and discouraging offshore migration.

2. Rationalising the 30% Tax Rate:

Stakeholders want crypto gains to be taxed in line with existing income tax slabs or capital gains frameworks applied to other financial assets. They say this would align crypto investing with equities, mutual funds, and other instruments, creating a level playing field.

3. Allowing Loss Set-Offs and Carry-Forward:

The inability to offset losses against gains or other income is seen as a major deterrent. Market participants stress that volatility is inherent in digital assets, and the absence of loss adjustment mechanisms increases risk disproportionately for retail investors.

4. Clear and Forward-Looking Regulation:

Beyond taxation, the industry is seeking a predictable regulatory roadmap. Companies want clarity on licensing, compliance expectations, and the treatment of emerging segments such as decentralised finance (DeFi), tokenisation, and Web3 infrastructure.

Adoption High, But Activity Shifting Offshore

India is widely recognised as one of the world’s leading crypto adoption markets. With an estimated tens of millions of users and a vibrant startup ecosystem, the country has emerged as a major hub for blockchain developers and entrepreneurs.

At the same time, regulators have strengthened oversight. The Financial Intelligence Unit (FIU-IND) has brought exchanges under anti-money laundering (AML) rules, requiring registration as reporting entities and adherence to stricter know-your-customer (KYC) norms.

Despite this compliance progress, industry representatives say the tax structure remains a bottleneck. A substantial share of trading volume by Indian users is believed to have shifted to foreign platforms, where transaction costs are lower and tax treatment may be more flexible. This not only affects domestic exchanges but may also reduce the government’s visibility into market activity and potential tax revenues.

Economic Stakes for India

The Web3 sector is often seen as a strategic growth area aligned with India’s digital economy ambitions. Blockchain startups span payments, gaming, supply chain, identity, and financial services, attracting both domestic and international investment.

Industry leaders argue that a more balanced tax framework could help India retain talent, capital, and innovation. By reducing friction and encouraging onshore participation, policymakers could strengthen formalisation rather than inadvertently pushing activity into less regulated spaces.

Supporters of reform also contend that a rationalised regime could boost institutional interest. Pension funds, asset managers, and large investors typically prefer clear tax treatment and the ability to manage gains and losses efficiently. A predictable system could deepen market maturity over time.

Balancing Innovation and Oversight

From the government’s perspective, digital assets present both opportunity and risk. Concerns around investor protection, financial stability, and illicit finance remain central. The original tax framework signalled caution while allowing the market to function.

However, as the sector evolves, industry voices say regulation must move from deterrence to calibrated supervision. Many argue that compliance is improving and that India now has the infrastructure to support a more nuanced approach.

A shift toward moderate TDS, loss set-offs, and capital gains parity would not remove oversight but could integrate crypto activity more closely into the formal financial system.

A Defining Budget Moment

Budget 2026 is widely seen as a critical juncture. With global interest in digital assets rising again and multiple jurisdictions refining their frameworks, India faces a choice: maintain a highly restrictive structure or adapt to encourage compliant growth.

A supportive recalibration could help India position itself as a competitive digital asset hub, leveraging its large user base and strong developer talent. Conversely, continued high transaction friction may risk further migration of users and businesses to overseas platforms.

Industry participants are hopeful that policymakers will weigh both revenue considerations and long-term ecosystem development. A balanced policy approach, they argue, could transform the current debate from one of constraint to one of opportunity.