Union Budget 2026: Crypto industry pushes for tax reset, clear regulatory roadmap for growth

As the Union Budget 2026 approaches, India’s crypto and Web3 ecosystem is once again in the spotlight, with industry participants calling for regulatory clarity and a more balanced tax framework. Despite India consistently ranking among the world’s top markets for crypto adoption, stakeholders argue that the absence of clear rules continues to limit the sector’s full potential, pushing innovation and liquidity offshore.

At present, cryptocurrencies and blockchain-based assets remain largely unregulated, with taxation and disclosure serving as the government’s primary tools for oversight.

The Union Budget 2025–26 offered little relief to crypto investors, retaining the 30% tax on gains and the 1% tax deducted at source (TDS) on transactions introduced in 2022. However, it did signal a stronger compliance push. FM Nirmala Sitharaman proposed amendments to the Income Tax Act requiring prescribed reporting entities to disclose transaction details related to virtual digital assets (VDAs), aiming to improve transparency and align definitions with evolving market practices.

While tax rates remain unchanged, the government has so far kept crypto futures and options outside the ambit of the Security Transaction Tax (STT).

Concerns and rules

Industry leaders acknowledge that India has made progress on compliance, particularly by mandating that Virtual Asset Service Providers register with the Financial Intelligence Unit and follow strict KYC and anti-money laundering norms. Yet, the lack of a comprehensive regulatory roadmap is now viewed as the biggest bottleneck for long-term growth.

Sumit Gupta, co-founder of CoinDCX, said the sector is hoping for pragmatic reforms in Budget 2026. “It has been four years since the current taxation framework was introduced. Reducing TDS from 1% to 0.01% would retain monitoring while removing the incentive for offshore migration,” he said, adding that aligning the 30% capital gains tax with income tax slabs and allowing loss offsetting could help build a stable and compliant ecosystem.

Tax experts echo these concerns. Harsh Bhuta, Partner at Bhuta Shah & Co LLP, said clearer rules are needed on the taxation of foreign crypto holdings, ESOPs issued by overseas companies, and incomes earned through global freelancing and remote work. “The tax treatment of these incomes must be simple and comprehensible under the new Income Tax Law to avoid ambiguity,” he said, also calling for greater clarity on TDS and withholding tax norms for crypto transactions.

Taxation reset

Income from the transfer of virtual digital assets (VDAs) such as cryptocurrencies and NFTs is taxed at a flat 30% rate, plus a 4% cess, regardless of whether the gains are classified as capital income or business income. The tax treatment is uniform for short-term and long-term gains, and investors are allowed to deduct only the cost of acquisition—no other expenses are permitted. Importantly, losses from digital assets cannot be set off against any other income, including gains from other cryptocurrencies. Any gifting of digital assets is also taxable in the hands of the recipient, and all gains must be reported under Schedule VDA in income tax returns.

In addition, Section 194S mandates a 1% TDS on the sale value of VDAs once annual transactions exceed ₹50,000 for specified persons or ₹10,000 for others. The buyer is responsible for deducting and depositing this tax. Even in barter transactions—where crypto is exchanged for another digital asset—TDS must be paid in cash by the buyer. If part of the payment is in kind and the cash portion is insufficient to cover TDS, the buyer must bear the shortfall.

For tax purposes, income from VDAs may fall under capital gains, business income, or income from other sources, depending on whether the asset is held as an investment, traded frequently, or received through gifts or airdrops. Together, these rules make crypto taxation in India one of the most stringent globally, with a strong focus on compliance and reporting.

Domestic and offshore platforms

Another major demand from the industry is parity between domestic and offshore platforms. Differing compliance and tax standards have created regulatory arbitrage, putting Indian exchanges that operate transparently at a disadvantage. Stakeholders argue that a level playing field would reward responsible operators and encourage onshore participation without compromising regulatory oversight.

The changing profile of Indian crypto investors highlights the evolution of the market. While early adoption was driven largely by younger, speculative traders, exchanges now report a growing share of experienced investors from traditional asset classes. 

Industry participants say the next phase of growth will depend less on market sentiment and more on regulatory certainty. With investor profiles maturing and compliance standards tightening, Budget 2026 is seen as an opportunity for the government to shift from a tax-led approach to a rules-based framework that offers clarity on licensing, consumer protection and market conduct.