India Faces Pressure to Rethink Crypto Taxes Ahead of Union Budget as Trading Shifts Offshore

As India approaches this 12 months’s Union Finances, policymakers are beneath stress to reassess the nation’s punitive crypto tax framework amid capital flight to offshore platforms, elevating questions on misplaced tax income and weakened regulatory oversight.

Indian crypto customers execute practically three-quarters of their crypto quantity offshore, round $6.1 billion (₹51,252 crore), with simply 27.33% remaining on home platforms, based on a report from crypto tax platform KoinX.

Finance Minister Nirmala Sitharaman is about to current her ninth consecutive funds on Sunday, a primary in over twenty years, with the crypto trade awaiting aid from a tax regime that has gutted home buying and selling volumes and pushed exercise to overseas exchanges accessed through VPNs.

Regardless of rating first in grassroots crypto adoption based on Chainalysis’ figures, India’s tax-heavy, policy-light strategy has created a regulatory limbo that contrasts with structured frameworks rising throughout Asia. 

“India’s VDA ecosystem is at a pivotal stage, with rising adoption throughout the nation; nevertheless, the present tax framework presents challenges for retail members by taxing transactions with out recognising losses, creating friction slightly than equity,” Ashish Singhal, co-founder of crypto trade CoinSwitch, instructed Decrypt.

The three broad requests for the 2026 Finances embrace tax rationalisation by means of “diminished Tax Deducted at Supply (TDS) and permitting loss set-offs; a regulatory mechanism for the sector; and inspiring blockchain adoption, each permissioned and permissionless,” Dilip Chenoy, Chairman of Bharat Web3 Affiliation, instructed Decrypt.

The 2022 tax hammer

In February 2022, the authorities introduced a 30% tax on crypto revenue, with no deductions or exemptions.

“No deduction in respect of any expenditure or allowance shall be allowed whereas computing such revenue besides value of acquisition,” Sitharaman famous in her Finances 2022 presentation.

The minister specified that gifting of digital digital belongings could be taxed on the recipient’s finish, whereas losses couldn’t be set off towards every other revenue. Buyers could not present losses from value drops or hacking incidents to offset taxation on income.

The 1% TDS has hammered high-frequency merchants and liquidity suppliers who function on skinny margins, making their enterprise fashions unsustainable on home platforms.

The regime tightened within the 2025 Union Finances, when undisclosed crypto beneficial properties had been introduced beneath Part 158B of the Revenue Tax Act, enabling retrospective audits on transactions courting again 48 months. 

Buyers who did not report beneficial properties face a 70% penalty on unpaid taxes.

Rationalisation, Not Rollback

A nationwide survey completed by CoinSwitch revealed deep dissatisfaction with the present crypto tax framework. 

Practically 66% of the 5,000 members take into account the tax regime unfair, with 53% describing it as “very unfair,” and about 59% report diminished participation on account of taxation, based on the report.

Over 80% search adjustments within the upcoming Union Finances, 48% search a decrease tax charge than 30%, 18% need the flexibility to set off losses, 16% need diminished TDS, and a robust 61% favour taxing crypto equally to equities or mutual funds.

“A discount in TDS on VDA transactions from 1% to 0.01% may enhance liquidity, ease compliance, and improve transparency whereas preserving transaction traceability,” Singhal stated, including that growing the TDS threshold to about $5,444 (₹5 lakh) may defend smaller traders from bearing an outsized tax burden.

In the meantime, CA Sonu Jain, chief threat and compliance officer at 9Point Capital, instructed Decrypt the present construction has “failed its twin goals of monitoring transactions and discouraging hypothesis.”

“As a substitute, it has resulted in a near-complete migration of VDA exercise to offshore platforms, the place transactions are neither successfully trackable nor regulated beneath Indian legislation,” Jain stated.

“Mockingly, the compliance burden has fallen disproportionately on law-abiding taxpayers who continued utilizing regulated platforms, and these customers have confronted elevated tax notices, scrutiny, and enforcement actions, which have created a notion of mistrust in the direction of sincere taxpayers,” he stated.

“What India wants proper now’s a good, trust-based tax and regulatory framework. Crypto is a brand new asset class, and with out belief between taxpayers and the Income, enforcement will stay inefficient and counter-productive,” he added.

Jain referred to as for revisiting how crypto losses are handled beneath Part 115BBH, noting they need to align with the taxation of shares and securities. 

He additionally urged changing the 1% TDS with information-based reporting methods like Assertion of Monetary Transactions, that are already utilized in capital markets.

“A proper regulatory framework, no less than for client safety and platform accountability, is crucial to revive confidence, carry exercise again onshore, and enhance long-term tax compliance,” he added.

Aishwary Gupta, World Head of Funds & RWAs at Polygon Labs, instructed Decrypt the trade seeks “pragmatic coverage reset balancing innovation with safeguards.”

He additionally pointed to TDS discount as a possible lever, echoing Singhal’s view that it may ease liquidity constraints and cut back incentives for offshore buying and selling.

He stated there’s a sturdy case to “revisit India’s flat 30% tax on crypto beneficial properties and permit loss set-offs,” saying it could carry VDAs nearer to the tax remedy of conventional monetary belongings.

Except for tax considerations, the actual precedence is regulatory readability, Gupta added, urging India to help stablecoin funds and asset tokenisation beneath present funds and securities frameworks slightly than crypto-specific guidelines.

Enforcement Failures

Earlier this month, tax authorities offered considerations to the parliamentary standing committee of finance, citing enforcement challenges together with borderless transfers, pseudonymous addresses, and transactions outdoors regulated banking channels, based on a Occasions of India report.

“The Finance Ministry needs to curb decentralisation, privacy-focused methods, and offshore exchanges; the FIU and Revenue Tax Division are on the identical web page,” a supply instructed Decrypt on the time.

World Divergence

India’s punitive stance contrasts with different main economies, and different Asian jurisdictions like Japan and Hong Kong have moved towards structured licensing regimes to draw digital asset companies.

India’s Financial Affairs Secretary Ajay Seth acknowledged early final 12 months that India is reconsidering its crypto stance following main international shifts.

Nevertheless, the dialogue paper on digital belongings, initially set for a September 2024 launch, stays delayed.

“The deeper coverage threat is that sustained opposition with out a parallel regulatory pathway will push innovation, capital, and expertise offshore, leaving India as a client and tax collector of crypto exercise slightly than a rule-setter,” Raj Kapoor, founder and CEO of the India Blockchain Alliance, beforehand instructed Decrypt.

Regardless of amassing roughly $5.2 million (₹437.43 crores) by means of crypto taxation, India lacks significant regulatory frameworks to guard customers or foster innovation.

As Sitharaman prepares to current the Union Finances 2026, the crypto trade stays cautiously hopeful that the federal government will acknowledge structural flaws and take into account reforms balancing income with investor safety and competitiveness of India’s onshore crypto markets.