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 strain 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 almost three-quarters of their crypto quantity offshore, round $6.1 billion (₹51,252 crore), with simply 27.33% remaining on home platforms, in line with a report from crypto tax platform KoinX.

Finance Minister Nirmala Sitharaman is about to current her ninth consecutive price range on Sunday, a primary in over 20 years, with the crypto business waiting for aid from a tax regime that has gutted home buying and selling volumes and pushed exercise to overseas exchanges accessed by way of VPNs.

Regardless of rating first in grassroots crypto adoption in line with Chainalysis’ figures, India’s tax-heavy, policy-light method 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; nonetheless, the present tax framework presents challenges for retail individuals by taxing transactions with out recognising losses, creating friction moderately than equity,” Ashish Singhal, co-founder of crypto trade CoinSwitch, instructed Decrypt.

The three broad requests for the 2026 Finances embrace tax rationalisation by way of “lowered 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 earnings, with no deductions or exemptions.

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

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

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 have been introduced beneath Part 158B of the Revenue Tax Act, enabling retrospective audits on transactions relationship again 48 months. 

Traders who didn’t report beneficial properties face a 70% penalty on unpaid taxes.

Rationalisation, Not Rollback

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

Practically 66% of the 5,000 individuals think about the tax regime unfair, with 53% describing it as “very unfair,” and about 59% report lowered participation resulting from taxation, in line with the report.

Over 80% search adjustments within the upcoming Union Finances, 48% search a decrease tax charge than 30%, 18% need the power to set off losses, 16% need lowered 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 protect smaller buyers 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 targets of monitoring transactions and discouraging hypothesis.”

“As an alternative, 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.

“Paradoxically, 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 instructed changing the 1% TDS with information-based reporting techniques like Assertion of Monetary Transactions, that are already utilized in capital markets.

“A proper regulatory framework, not less than for client safety and platform accountability, is crucial to revive confidence, convey exercise again onshore, and enhance long-term tax compliance,” he added.

Aishwary Gupta, International Head of Funds & RWAs at Polygon Labs, instructed Decrypt the business 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 might convey VDAs nearer to the tax remedy of conventional monetary belongings.

Except for tax considerations, the true precedence is regulatory readability, Gupta added, urging India to assist stablecoin funds and asset tokenisation beneath current funds and securities frameworks moderately than crypto-specific guidelines.

Enforcement Failures

Earlier this month, tax authorities introduced considerations to the parliamentary standing committee of finance, citing enforcement challenges together with borderless transfers, pseudonymous addresses, and transactions exterior regulated banking channels, in line with a Instances of India report.

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

International 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 world shifts.

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

“The deeper coverage threat is that sustained opposition and not using a parallel regulatory pathway will push innovation, capital, and expertise offshore, leaving India as a client and tax collector of crypto exercise moderately 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 way 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 business stays cautiously hopeful that the federal government will acknowledge structural flaws and think about reforms balancing income with investor safety and competitiveness of India’s onshore crypto markets.