As Budget 2026-27 approaches, India’s crypto and virtual digital asset (VDA) sector is expecting long-awaited regulatory clarity to boost investor confidence, along with a rationalisation of the 1% tax deducted at source (TDS) on crypto transactions.
Industry participants say the current tax framework has constrained liquidity and discouraged active participation, despite India being one of the world’s largest crypto adoption markets.
No Change in VDA Tax Rules in Budget 2025
In the Union Budget 2025, the finance minister retained the existing tax treatment for virtual digital assets, despite repeated representations from the cryptocurrency industry seeking reforms.
The sector has consistently argued that the current tax structure acts as a hurdle for investors and traders, pushing activity offshore and reducing onshore liquidity.
Background: How Crypto Is Taxed in India
Cryptocurrencies were formally recognised as Virtual Digital Assets in Budget 2022, when a dedicated taxation framework was introduced. Under the Income Tax Act, key provisions governing VDAs include:
- Section 115BBH: A flat 30% tax on gains from VDAs, with no allowance for loss set-offs
- Section 194S: 1% TDS on crypto transactions
- Non-trading income taxed as per the individual’s applicable income slab
Industry experts say while the framework brought legitimacy, it now needs refinement to support sustainable growth.
Industry Calls for Regulatory and Tax Reforms
According to tax experts, Budget 2026 comes at a crucial juncture for India’s crypto ecosystem. They believe a clear and consistent regulatory framework would improve confidence among investors, institutions, and market participants, while allowing businesses to operate within well-defined boundaries. From a taxation perspective, experts have suggested that:
- Rationalising the 1% TDS could improve liquidity and revive onshore trading
- Reviewing the 30% flat tax on VDA gains, aligning it with other asset classes and allowing loss set-offs, would create a more balanced investment environment
They say greater policy clarity could unlock innovation, help India’s Web3 ecosystem scale responsibly, and strengthen the country’s position in the global crypto economy.
Push to Revive Onshore Liquidity and Compliance
Experts have noted that lowering transaction-level TDS and permitting loss set-offs could encourage crypto activity to remain within India’s regulated framework.
Clear compliance and reporting guidelines, they say, would not only boost investor confidence but also support the development of a transparent and sustainable digital asset ecosystem aligned with India’s long-term economic goals.
Focus on ‘Make in India’ for Digital Assets
Industry voices have highlighted India’s strong grassroots participation in crypto adoption and said the upcoming Budget offers an opportunity to back this momentum with a ‘Make in India’ approach for digital assets.
They have called for policy support for compliant domestic platforms that follow Indian KYC and AML norms, capital controls, and data protection requirements, while acting firmly against entities offering unauthorised services.
A balanced regulatory framework, experts said, should clearly distinguish between compliant Indian platforms and non-compliant offshore operators.
Call for Uniform Compliance and Consumer Protection
Experts have also pointed out that it has been four years since the current crypto taxation framework was introduced, making this an opportune time for measured reforms.
They emphasised the need for clarity in rules and uniform implementation of TDS provisions by all crypto exchanges, which would improve compliance and enhance consumer protection against non-compliant operators.
Opportunity to Strengthen India’s VDA Ecosystem
With India witnessing rapid adoption of blockchain and virtual digital assets, experts believe Budget 2026-27 presents an opportunity to strengthen the VDA ecosystem through calibrated regulatory and tax refinements.
Such measures, they say, can protect users, maintain financial stability, encourage responsible innovation, and help position India as a global Web3 and digital asset hub.
Source: ET