As India prepares for Union Budget 2026, the country’s cryptocurrency ecosystem is once again under sharp focus, with industry data suggesting that nearly ₹4.87 lakh crore worth of crypto trading volume has migrated to offshore platforms due to India’s current tax framework. Market participants argue that calibrated changes to taxation—without diluting regulatory oversight—could bring a significant portion of this activity back within the domestic financial system.
Over the past few years, crypto assets have moved steadily into India’s mainstream financial discourse. Participation is no longer limited to metropolitan investors, with growing adoption in tier-2 and tier-3 cities. Investors are increasingly using digital assets not only for short-term trading but also for long-term portfolio diversification through disciplined investment approaches.
Despite this shift in investor behaviour, the existing tax structure introduced in 2022 continues to be viewed as misaligned with market realities.
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30% tax and 1% TDS choke liquidity
Under the current regime, profits from virtual digital assets attract a flat 30% tax, while every transaction is subject to 1% tax deducted at source (TDS). While the framework was designed to improve traceability and compliance, the 1% TDS has emerged as a major friction point.
Market data shows that the TDS provision locks up capital, reduces liquidity and makes frequent or systematic trading economically inefficient. As a result, a substantial portion of Indian crypto trading activity has shifted to foreign platforms that fall outside India’s tax and regulatory net.
Industry estimates indicate that in 2025 alone, trading worth approximately ₹4.87 lakh crore moved offshore, significantly limiting domestic visibility and enforcement.
Revenue paradox for the exchequer
Since the introduction of the crypto tax regime, compliant domestic exchanges have contributed around ₹1,096 crore to the government through TDS collections. However, analysts estimate that the migration of volumes to offshore platforms has led to a potential revenue loss of nearly ₹11,000 crore in uncollected taxes.
Experts argue that reducing the TDS rate to 0.01%—in line with other financial markets—would preserve transaction traceability while encouraging investors to remain on Indian platforms, thereby widening the tax base rather than shrinking it.
Flat tax ignores holding period and losses
Another widely cited concern is the flat 30% tax on crypto gains, irrespective of holding period or investor income bracket. Unlike equities and mutual funds, crypto investors are not allowed to offset losses against gains, making taxation significantly harsher than other asset classes.
Market observers say aligning crypto taxation with established capital gains principles—such as differentiating between short-term and long-term holdings and permitting loss set-offs—would encourage responsible investing and reduce speculative churn.
Regulatory framework already in place
On the regulatory front, India has already strengthened oversight through updated guidelines issued by FIU-IND. These measures mandate stricter KYC norms, enhanced transaction monitoring, cybersecurity disclosures and reporting requirements for crypto platforms.
Analysts note that regulation and taxation need not work at cross-purposes. With transparency and compliance increasingly enforced through regulatory mechanisms, tax policy can be recalibrated to reduce investor burden without compromising accountability.
Changing investor profile strengthens case for reform
Investor behaviour in India’s crypto market is also evolving. Participation from smaller towns is rising, women investors are entering the space in greater numbers, and a growing segment is adopting disciplined, long-term investment strategies rather than speculative trading.
This transition, experts argue, supports the case for treating crypto as a legitimate asset class rather than a fringe instrument.
What Budget 2026 could address
Policy watchers believe Budget 2026 presents an opportunity to recalibrate India’s crypto framework. Potential measures include lowering TDS, rationalising capital gains taxation, allowing loss adjustments and reinforcing the existing regulatory architecture.
Such steps could bring trading activity back onshore, improve tax compliance, enhance investor protection and ensure that innovation remains within India’s financial ecosystem.
A balanced and forward-looking crypto policy, analysts say, would not only strengthen India’s digital economy but also rebuild trust between investors, regulators and the state—an outcome that Budget 2026 is well-placed to deliver.
About the author – Ayesha Aayat is a law student and contributor covering cybercrime, online frauds, and digital safety concerns. Her writing aims to raise awareness about evolving cyber threats and legal responses.
