Indian Crypto Platforms Push for Tax Reforms Ahead of February Budget

India’s crypto industry is pushing for changes to the current tax framework ahead of the country’s February 2026 Union Budget. Industry leaders argue that the current system, which includes a flat 30% tax on gains and a 1% tax deducted at source (TDS) on most transactions, is discouraging onshore activity. The inability to offset losses from trades has also been cited as a major barrier.

Executives from major domestic exchanges say the current tax regime no longer reflects the global digital asset market’s evolution or India’s progress in strengthening oversight. The renewed push comes as policymakers finalize fiscal priorities for the next financial year.

The Union Budget of India, expected to be presented in February 2026, is seen as a potential turning point. Industry representatives are urging the government to review the existing framework, which they claim is counterproductive for tax revenues and investor confidence.

Why the Move Happened

India’s crypto tax framework, introduced in 2022, levies a flat 30% tax on gains and applies a 1% TDS on transactions, whether they are profitable or not. Additionally, losses from trades cannot be used to offset gains, which penalizes risk-taking and discourages retail participation. This has reportedly led to trading volumes shifting offshore and exchanges relocating operations to avoid the onerous tax environment.

The Central Board of Direct Taxes (CBDT) has raised concerns about the risks posed by virtual digital assets (VDAs), aligning with the Reserve Bank of India’s (RBI) regulatory stance. These concerns include the anonymous, borderless nature of crypto transactions, the use of offshore exchanges and wallets, and jurisdictional limitations that hinder enforcement and tax compliance.

How the Current Tax Framework Impacts the Market

The current regime treats crypto trading far more harshly than equities, real estate, or even speculative assets, despite its growing mainstream adoption. For instance, losses cannot be carried forward, and the 1% TDS is applied regardless of profitability. This is especially burdensome for small investors, as it disproportionately affects liquidity.

Industry representatives argue that the tax structure creates friction for retail participants and does not align with the economic principles of fairness and risk-sharing. By taxing gains without recognizing losses, the system penalizes risk-taking, which is a key component of market activity.

What Analysts Are Watching for in the Budget

Analysts are closely watching for potential reforms in the upcoming February budget. Possible changes being discussed include allowing set-off of losses between different VDAs, providing statutory guidance on the situs of VDAs for non-residents, and reviewing the impact of the 1% TDS on market liquidity.

Some industry experts, including Ashish Singhal, Co-founder of CoinSwitch, have proposed reducing the TDS from 1% to 0.01% and raising the threshold to ₹5 lakh to protect small investors. This, they argue, could improve liquidity, ease compliance, and enhance transparency while preserving transaction traceability.

The Bharat Web3 Association and major Indian exchanges are presenting a unified front to the Finance Ministry, urging the government to lower the TDS and allow loss set-offs. These changes, they argue, would align India’s digital asset tax regime with global standards and encourage onshore activity.

In parallel, EY India has suggested that the Union Budget 2026 should focus on tax certainty, private investment, and sector reforms to support growth amid global uncertainty. It has also called for detailed guidelines and predictable tax policies to reduce confusion and unnecessary litigation.

As the government prepares for the budget, the crypto industry remains hopeful that the current framework will be revisited in a manner that is beneficial to both investors and the government. According to industry analysis, this could represent a significant shift in India's digital asset regulatory landscape.