How Budget 2026 can rationalise taxes, regulate platforms for India’s crypto future

• India's crypto industry seeks tax reforms in Budget 2026 to prevent offshore migration.
• Lowering TDS and aligning capital gains tax may enhance compliance and innovation.
• Tax rules push users to offshore exchanges, risking security and revenue

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In the rapidly evolving world of finance, few sectors have captured both imagination and apprehension quite like crypto. India, being home to one of the largest and most enthusiastic crypto communities globally, is actually at a cusp as regulatory structures get clear around the world. It is, thus, natural that the crypto community looks forward to Budget 2026 with expectations for measured relief– not only for the future but also because it has been four years since the taxation frameworks were implemented. The choices made in this budget can boost innovation and position India as a global Web3 leader.

A 1% Tax Deducted at Source (TDS), coupled with a 30% flat capital gains tax rate on virtual digital assets (VDAs) introduced in 2022, was designed to oversee the markets and ensure compliance. However, the policy objectives seem to have missed. The Indian Crypto Exchanges witnessed a mass exodus to offshore exchanges once the announcements were made in February, and further when the same were implemented in July. Between 2022 and late 2024, Indians traded over Rs 5.8 lakh crore on unregulated offshore platforms, more than 90% of total VDA trading by Indians.

The government collected a mere Rs 258 crore in TDS, while losing an estimated Rs 2,500-5,000 crore in uncollected taxes. A Delhi-based think tank calculates the government has already lost Rs 6,000 crore, with another Rs 17,700 crore projected over the next five years if policy remains unchanged.

The exodus reflects more than just implementation challenges. An estimated 5 million Indian users migrated to offshore platforms to avoid the TDS burden. Large numbers continue transacting on unregulated exchanges that operate outside Indian law, often through peer-to-peer networks that bypass KYC requirements and make AML/CFT enforcement impossible. Various media reports in the past few months have highlighted this challenge from various parts of the country. Many choose to be outside the FIU-India net to attract the gullible investor promising the moon, but only to either defraud them or link them in networks with illicit players, thereby compromising their financial integrity. They've created a sophisticated money laundering infrastructure that undermines both tax compliance and national security objectives. By driving activity underground, we've inadvertently facilitated organised schemes that evade regulation entirely.

This exodus threatens India's competitive position at a critical moment. India boasts the world's largest grassroots crypto adoption for three consecutive years, hosts over 1,000 Web3 startups, and commands 12% of global crypto developers, roughly 75,000 professionals. Blockchain technology could contribute $1.1 trillion to India's GDP by 2032. Yet restrictive tax rules push entrepreneurs to Dubai, Singapore, and the United States, where policymakers recognise blockchain's strategic importance. The UAE offers zero personal income tax and zero capital gains tax on crypto. The US established a strategic Bitcoin reserve. Meanwhile, we're watching Indian talent and capital flow across borders because our policies make it financially irrational to remain home.

What Budget 2026 must do

The path forward requires pragmatic reforms that bring users back to regulated platforms while maintaining oversight and compliance. First and foremost must be to clear the rules and make sure that all crypto exchanges implement the taxation rules related to TDS. This will not only increase compliance but also protect citizens from falling into the trap of such shady operators. Moreover, it will also balance the competitive field, which has been distorted due to the non-application of the TDS rule by various offshore players. Alongside reducing TDS from 1% to 0.01% would ensure that monitoring continues while eliminating the primary driver of offshore migration. Users would return to Indian platforms, bringing transaction visibility back under government purview.

Secondly, align the 30% capital gains tax with income tax slabs. The current flat rate treats crypto differently from every other asset class, violating tax equity principles. A student earning Rs 50,000 shouldn't face the same rate as someone in the highest bracket. This change would encourage legitimate wealth creation rather than offshore tax avoidance. Many countries around the globe have realized this and have either rationalized their personal income tax regime or are in the process of doing the same. While doing this, they are also disincentivizing offshore players by putting a higher degree of taxation, to push them to come within the monitoring network.

Third, allow loss offsetting and standard business deductions for Web3 ventures. Disallowing these defies basic accounting principles. Web3 businesses experience both profits and losses, like any sector. The current framework creates absurd scenarios where companies face tax liability despite operating at net losses.

Compliance and competition aren't mutually exclusive

The crypto industry's demonstrated commitment to PMLA guidelines proves innovation and regulation can coexist. Uniform applicability of TDS at a lower rate achieves the government's objective of tracking transactions while keeping Indian exchanges competitive. This increases overall tax collection as investors return to FIU-registered platforms, granting the government visibility into transaction patterns, suspicious activities, and real income from crypto trading. Currently, we gain none of this. We've created a system where pursuing regulatory objectives actually drives activity completely underground.

Budget 2026 represents a genuine opportunity to reset crypto policy. As the Finance Ministry initiates its pre-budget consultations, all of us in the sector will also submit our suggestions with renewed vigour and with a promise that the sector is always ready to work in the national interest and play its role in making Viksit Bharat.