As Budget 2026 nears, India’s crypto industry is asking the government to ease existing tax rules introduced in 2022. Industry players say the 1 percent tax deducted at source (TDS) and 30 percent tax on gains have driven traders to offshore platforms and reduced activity in India.
They believe simpler taxes and clearer rules, allowing loss set-offs against crypto gains, and a much-awaited policy on virtual digital assets (VDAs), will bring users back to Indian exchanges, improve compliance, and support the responsible growth of the digital asset sector.
Reduction in TDS on crypto transactions
Currently, there is a 1 percent Tax Deducted at Source (TDS) on every transaction, which locks up the capital of traders. The industry proposes to reduce the TDS rate to 0.01 percent on cryptocurrency and virtual digital assets.
“The industry proposes a reduction of TDS rate to 0.01 percent, which would strike a balance between effective transaction tracking and promoting the growth of the domestic crypto market,” an industry expert said.
The Centre introduced 1 percent TDS on every crypto and VDA transaction with effect from July 1, 2022, following the Budget 2022 announcement. This rule was brought under Section 194S of the Income Tax Act, requiring every buyer of virtual digital assets to pay 1 percent TDS to the crypto exchange, which is then deposited with the government.
Another industry expert said explains that the 1 percent TDS on crypto and VDA transactions has pushed trading activity to offshore platforms, reducing visibility and participation within the domestic ecosystem.
“Reducing TDS to 0.01 percent and allowing loss offsetting would ease friction for investors, improve transparency, and support the long-term, sustainable growth of India’s crypto industry,” he said.
Review 30 percent flat capital gains tax on VDAs
The Budget 2022 also introduced a 30 percent flat tax on profits earned from virtual digital assets, bringing crypto income, along with winnings from lotteries and gambling, under the scanner of a stricter tax regime.
This means, irrespective of the period of investment in cryptos, a flat 30 percent is applied to every profitable gain. Crypto experts argue this reduces the net returns from VDAs, especially for long-term investors who would otherwise benefit from long-term capital gains (LTCG) from investment in other assets, like mutual funds.
According to another industry expert, a pragmatic framework focused on capital gains realised, with provisions for limited loss set‑off and removal on transaction‑level levies in favour of net-revenue generating corporate taxes instead, can improve fairness for retail participants and indicate to them India has moved past the tax-and-deter regime towards a fuller license-and-supervise one.
“The steep taxation of 30 percent on crypto gains creates a stark disparity in how equities and crypto are treated, affecting the sentiment of users towards one asset class,” he said.
Set-off against crypto gains
Crypto industry players also demand that a shift from transaction-level taxes to net-revenue taxation is required to set off losses.
Industry players concur that by allowing loss set-off, investors can absorb losses from one crypto against gains in other crypto transactions, so that tax is paid only on net profits. However, the current rule does not allow losses from virtual digital assets to be absorbed against gains from any other assets.
“Disallowing loss set-offs even in the same asset class creates an uneven and asymmetric tax regime,” he said.
Regulatory clarity for VDAs
The Centre has time and again made its stance clear that the Indian government does not regulate cryptocurrency. Instead, taxation applies to every crypto activity.
Analysts say that the underreporting or non-disclosure of crypto assets carries risk, especially at a time when tax authorities are closely tracking crypto activities.
Another industry expert, expects Budget 2026 to represent an important opportunity to provide regulatory clarity for the crypto sector.
“Clear and well-defined guidelines around the classification, treatment, and oversight of digital assets would significantly strengthen confidence among investors, institutions, and market participants. Greater clarity on both regulation and taxation would also enable businesses to plan responsibly, innovate within defined boundaries, and deepen onshore participation,” he said.
