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Key Takeaways

1. Urgent Demand for Tax Relief
   India’s cryptocurrency industry is fervently advocating for tax relief ahead of the upcoming Union Budget. The current tax regulations are perceived as excessively harsh and detrimental to growth.

2. Calls for Specific Reforms
   Crypto exchanges and platforms are seeking to lower the Tax Deducted at Source (TDS), enable loss set-offs, and reassess the flat 30% tax rate to prevent further offshore migration of trading activities.

3. Government Skepticism Remains
   Despite vigorous lobbying efforts, major reforms seem unlikely, as the government continues to categorize cryptocurrencies as speculative assets sensitive to revenue concerns.

Crypto Industry’s Focus on the Union Budget

As Finance Minister Nirmala Sitharaman readies to reveal India’s Union Budget on February 1, 2026, one sector is scrutinizing the proceedings with acute interest: cryptocurrency.

Four years after India integrated digital assets into its tax structure, the cryptocurrency sector asserts that the existing framework has inadvertently incentivized businesses to relocate offshore. This shift has drained liquidity from domestic exchanges, leading industry leaders to implore the government to utilize the 2026 Budget as a pivotal moment—a crucial juncture that harmonizes regulatory oversight with growth opportunities.

The question now remains whether New Delhi will indeed heed these calls for reform.

The Current Tax Regime Under Scrutiny

India’s existing cryptocurrency tax laws trace back to the 2022 Union Budget, in which cryptocurrencies and NFTs were designated as Virtual Digital Assets (VDAs). While this decision provided the long-awaited legal acknowledgment, it also ushered in one of the most stringent tax conditions globally.

Gains from crypto transactions are subjected to a substantial flat tax rate of 30%, in addition to surcharges and cess. To complicate matters further, losses cannot be offset against gains or carried forward to subsequent financial years. A 1% TDS applies on most transactions, regardless of whether they are profitable.

Many in the industry argue that this stringent tax framework has decimated liquidity in Indian crypto exchanges, pushing traders to explore offshore platforms with more favorable tax conditions. Estimates suggest that trillions of dollars in trading volumes have shifted abroad since the 2022 changes, leading to reduced compliance and oversight for domestic regulators. As India aspires to position itself as a center for fintech and Web3 innovation, industry stakeholders believe this disconnection is increasingly untenable.

Demands from the Crypto Sector

In the lead-up to Budget 2026, crypto companies are uniting around a set of specific, recurring requests essential for revitalizing the industry.

Key Demands Include:

• Reduction of TDS: Proposals suggest lowering TDS from the current 1% to much lower levels, such as 0.01% or 0.1%.
• Raising the TDS Threshold: Advocates are calling for an increase in the TDS threshold (e.g., to ₹5 lakh), which would alleviate financial burdens on smaller investors.
• Enabling Loss Set-offs and Carry-Forward: There’s a strong push for allowing loss set-off options and the ability to carry forward losses.
• Rethinking the 30% Tax Rate: The flat 30% tax is being criticized, with calls for realignment to better reflect income slabs, capital gains taxes, or standards applicable to other asset classes like equities.
• Improved Regulatory Clarity: Supporters seek clearer definitions and regulatory frameworks, particularly for emerging assets like NFTs, with governance potentially under SEBI or RBI guidelines.

Proponents assert that these adjustments would not only revitalize onshore trading but also enhance Know Your Customer (KYC) and Anti-Money Laundering (AML) oversight, thus mitigating the risk of talent drain to places like Dubai and Singapore.

Perspectives from Industry Leaders

Crypto firms have decisively communicated their urgent needs through pre-budget submissions and various public statements.

Edul Patel, CEO of Mudrex, articulated in an interview that modest tax alterations could significantly amplify investor confidence. He stated:

“As we approach the Union Budget FY27, there exists a unique opportunity to adopt a more balanced and future-focused strategy. A reduction in TDS to 0.1% and the permission for offsetting losses would alleviate burdens for investors, increase transparency, and bolster the sustainable growth of India’s crypto industry.”

Echoing these sentiments, CoinDCX CEO Sumit Gupta has advocated for a reduction of TDS to 0.01%, reinstatement of loss offsetting, and a reconsideration of the flat 30% tax. Gupta emphasized that the existing tax framework contradicts fundamental principles of equity and has led to a staggering 70-90% drop in trading volumes on Indian exchanges since 2022. Additionally, ZebPay and other key players have voiced grave concerns that without prompt reforms, India risks ceding its position as one of the largest crypto markets—due not to diminishing demand but rather due to regulatory friction.

Will Budget 2026 Ease the Burden?

Despite extensive lobbying efforts, the consensus among analysts is cautious. The government has consistently positioned cryptocurrencies as speculative assets, often likening them to gambling rather than stable investment vehicles like equities or mutual funds.

Concerns surrounding revenue stability and financial risks continue to dominate policy discussions, leading past budgets to largely sustain existing tax structures that focus more on compliance than on reform. As a result, there is skepticism about significant tax cuts being a realistic prospect this year. Analysts predict that modest adjustments, such as modifying TDS thresholds or refining asset definitions, are more attainable.

Nevertheless, industry insiders maintain that even minimal changes would send a compelling message. With India being one of the largest markets for cryptocurrency adoption globally, the decisions made in Budget 2026 will be pivotal.

It remains to be seen whether the government will nurture this momentum or choose to continue taxing it into obscurity offshore, ultimately shaping the future of India’s digital asset landscape.

How AI legalese decoder Can Help

In this intricate environment of evolving regulations, the AI legalese decoder can serve as a vital tool for navigating the complexities of cryptocurrency tax law. By simplifying legal language and clarifying tax obligations, it can empower investors and crypto businesses to better understand their rights and responsibilities, ensuring compliance while effectively advocating for much-needed reforms. Access to clear and comprehensible legal information can facilitate informed decision-making, bolstering firms’ efforts to engage with policymakers and potentially influencing positive changes in the regulatory landscape.

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