Crypto Policy & Budget 2026

Crypto Policy & Budget 2026: The Industry’s Case for Rationalization

1. Source and Current Legislative Context

• Official Industry Commentary. The detailed discussion on Budget 2026 expectations can be found here:
  Source
• Retained Tax Structure. Despite intense lobbying, the government has kept the **30% flat tax** on VDA gains and the **1% TDS** on every transaction unchanged for the 2026-27 period.
• New Compliance Penalties. The Finance Bill 2026 introduced **Section 509**, which imposes a daily fine of **₹200** for non-filing of transaction statements and a flat **₹50,000** penalty for submitting inaccurate data, effective April 1, 2026.

2. The 1% TDS and Liquidity Concerns

• Capital Lock-in. Industry players like **Nischal Shetty (WazirX)** argue that the 1% TDS on every trade—regardless of profit or loss—drains liquidity from high-frequency traders.
• Proposal for Reduction. The industry has proposed a reduction of TDS to **0.01%** or **0.1%**, arguing this would still fulfill the government’s goal of “track and trace” without paralyzing market activity.
• Onshore Migration. Rationalizing TDS is seen as the primary lever to bring Indian traders back from **offshore/unregulated exchanges** where such levies are not collected.

3. The Challenge of “No Loss Set-off”

• Asymmetrical Taxation. Currently, if a trader makes a ₹10,000 profit on Bitcoin but a ₹10,000 loss on Ethereum, they must pay 30% tax on the profit while being unable to use the loss to reduce their tax bill.
• Effective Tax Rate. Industry data for FY 2024-25 showed that many investors who ended the year with **net losses** still faced significant tax liabilities due to this inability to offset trades.
• Demand for Parity. Stakeholders are urging the government to treat VDAs like other asset classes (stocks or gold) by allowing losses in one crypto asset to be set off against gains in another.

4. Stagnation vs. Growth Momentum

• Rising Volumes. Despite the tax friction, transaction values in India jumped 41% to reach **₹51,180 crore** in 2024-25, up from ₹36,270 crore the previous year.
• Revenue for the Exchequer. The government collected **₹511.8 crore** in TDS alone during FY 2024-25, proving the sector is a significant and consistent revenue generator.
• Investor Sentiment. Platforms like **ZebPay** and **CoinSwitch** warn that the current “punitive” tax rates discourage long-term participation and treat crypto more like gambling than a technological asset.

5. Alignment with Global Regulatory Standards

• G20 Roadmap. India has been a vocal advocate for a global regulatory framework for crypto; industry leaders argue that domestic tax laws should now align with this leadership.
• KYC/AML Compliance. Exchanges emphasize that they already follow strict **Financial Intelligence Unit (FIU)** norms, making high taxes unnecessary as a tool for deterrence.
• Web3 Innovation. Founders believe a balanced tax regime would unlock India’s potential as a **Web3 hub**, preventing the “brain drain” of developers to crypto-friendly hubs like Dubai or Singapore.

6. The Rise of “Schedule VDA” in Tax Filing

• Streamlined Reporting. The Income Tax Department has introduced a dedicated **Schedule VDA** in ITR forms to simplify how citizens report their holdings and gains.
• Enhanced Transparency. This dedicated section, combined with the new 2026 penalties, signals the government’s shift toward **full formalization** of the sector.
• AI-Powered Oversight. The Ministry of Finance is increasingly using **AI platforms** to cross-verify exchange data with individual tax filings to detect undisclosed income.

7. Protecting Small and Retail Investors

• TDS Threshold. One major demand is to increase the TDS exemption threshold to **₹5 lakh** per year to protect small retail investors from the compliance burden of high-frequency deductions.
• Tax Slabs. Industry players suggest that rather than a flat 30%, crypto gains should be taxed according to the individual’s **income tax slab**, especially for low-income earners.
• Education vs. Taxation. Stakeholders argue that consumer protection is better achieved through investor education and exchange regulation rather than high entry/exit taxes.

8. Impact on Decentralized Finance (DeFi)

• Classification Clarity. The 2026 framework has refined definitions to clearly encompass **Stablecoins, NFTs, and DeFi tokens** under the VDA umbrella.
• Staking Rewards. There is ongoing debate about whether “staking rewards” should be taxed as “Income from Other Sources” or under the VDA gains framework.
• Technological Edge. Excessive taxation on DeFi activity is seen as a hurdle for Indian developers building the next generation of decentralized financial infrastructure.

9. State-Level Participation Trends

• Geographic Concentration. Analysis of TDS data shows that **Maharashtra and Karnataka** contribute nearly 80% of India’s total crypto tax revenue.
• Tier-2 Growth. While metros dominate, there is a sharp increase in compliant trading activity from states like **Rajasthan and Gujarat**, indicating a spread into the heartland.
• Economic Footprint. The concentration of activity in tech hubs like Bengaluru (Karnataka) underscores the link between the IT sector and crypto adoption.

10. Summary of the Crypto Tax Debate (2026)