Crypto industry flags TDS, 30% tax and regulatory gaps ahead of Budget 2026

• India's crypto industry urges lower TDS and simpler tax rules in Budget 2026
• Industry seeks loss set-offs, clearer rules to boost domestic crypto growth
• Flat 30% tax and 1% TDS seen as curbing trading and pushing users offshore

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As Budget 2026 approaches, India’s crypto industry is urging the government to revisit the tax framework introduced in 2022.

Industry players argue that the 1 percent TDS and flat 30 percent tax on gains have curtailed domestic trading, pushed users offshore, and dampened innovation.

They are seeking simpler taxation, loss set-offs, and clearer rules to revive participation and ensure sustainable growth.

Cut 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,” said Nischal Shetty, Founder of WazirX.

The Centre imposed a 1 percent TDS on all crypto and virtual digital asset transactions from July 1, 2022, following the Budget 2022 announcement. Introduced under Section 194S of the Income Tax Act, the rule mandates buyers to deduct 1 percent tax on each transaction, which exchanges then remit to the government.

Edul Patel, CEO of Mudrex, 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," said Patel.

Review 30 percent flat capital gains tax on VDAs

Budget 2022 imposed a flat 30 percent tax on profits from virtual digital assets, placing crypto income in the same category as winnings from lotteries and gambling. The tax applies uniformly, regardless of holding period.

Crypto experts argue this erodes net returns, particularly for long-term investors who miss out on long-term capital gains benefits available for other asset classes such as mutual funds.

According to SB Seker, Head of APAC, Binance, 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," said Shetty.

Set-off against crypto gains

Crypto industry players are calling for a move away from transaction-level taxes toward net-revenue taxation to allow loss set-offs. They argue that permitting investors to offset losses from one crypto against gains from another would ensure tax is levied only on net profits.

Under the current framework, losses from virtual digital assets cannot be adjusted against gains from any asset class.

“Disallowing loss set-offs even in the same asset class creates an uneven and asymmetric tax regime,” said Shetty.

Bring 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.

Raj Karkara, COO of ZebPay, 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,” said Karkara.