India's Crypto Tax Stance Hardens: No Relief in 2026 Budget as Trading Exodus Continues

Finance Minister Nirmala Sitharaman's 2026 Union Budget has delivered a sobering message to India's digital asset community: the nation's tough crypto tax regime is here to stay. In her budget presentation on Sunday, Sitharaman left unchanged the 30% flat tax on virtual digital asset (VDA) income and the 1% Tax Deducted at Source (TDS) on all transactions—a framework first introduced in 2022 that analysts blame for a massive migration of trading activity to foreign platforms.

The decision to maintain the status quo effectively dashes a two-year campaign by domestic exchanges, investors, and advocacy groups for relief from rules they argue have stifled the local industry. Data suggests nearly 75% of India's crypto trading volume, once valued at over $6 billion, has shifted to offshore exchanges since the taxes were implemented, seeking more favorable jurisdictions.

"The government's stance is clear: they are in observation mode," said Pranav Agarwal, an independent director at Jetking Infotrain India, the country's first listed Bitcoin treasury company. "This budget signals that crypto taxation is not a current priority for revision. The focus remains on enforcement and building a global regulatory consensus before any domestic recalibration."

The unchanged rules mean Indian investors continue to face unique constraints. Losses from one crypto asset cannot be offset against gains from another, and the 1% TDS on every transaction—regardless of profit or loss—has made high-frequency and margin trading strategies commercially unviable on domestic platforms.

While offering no tax relief, the 2026 budget did provide one concession on enforcement. The criminal liability for failing to deduct TDS, previously punishable by up to seven years' imprisonment, has been reduced to a maximum of two years. Courts have also been granted discretion to convert violations into monetary penalties.

"This is a significant, albeit narrow, positive for peer-to-peer traders and those who have struggled with compliance," noted CA Sonu Jain, Chief Risk and Compliance Officer at 9Point Capital. However, Jain emphasized that the government's overarching priority is "not revisiting the tax policy itself, but strengthening reporting, compliance, and the global regulatory dialogue."

This global coordination was highlighted as a key reason for the domestic policy freeze. India continues to lead discussions on a comprehensive crypto asset framework at the G20 level. Experts suggest any revision to domestic tax rules is unlikely until such international standards are firmly established.

Simultaneously, the budget tightened other compliance screws. New penalties were introduced for failures in reporting crypto asset transactions under the updated Income Tax Act. Entities that fail to furnish required statements will face a daily penalty of ₹200, while providing inaccurate information could result in a one-time penalty of ₹50,000, effective April 1.

"Taxation was always envisioned as an interim, stabilizing measure until clear regulations were defined," explained Sudhakar Lakshmanaraja, founder of the Web3 policy advocacy body Digital South Trust. "In the face of ongoing market volatility, this steady approach reflects policy maturity. It provides a compliance baseline that supports long-term, responsible ecosystem growth."

The government's position appears to align with the Reserve Bank of India's longstanding concerns about cryptocurrencies' potential risks to financial stability. By maintaining high taxes, the authorities seem to be discouraging speculative trading while they work on a broader regulatory architecture.

Industry Reaction: Frustration and Resignation

The budget outcome has sparked mixed, but largely disappointed, reactions from market participants:

• Raj Mehta, Mumbai-based Retail Investor: "It's utterly disheartening. We're being treated like cash cows for the treasury while our capital and innovation flee to Dubai or Singapore. The government talks about a 'digital India,' but its actions are pushing a digital industry out of India."
• Priya Sharma, Fintech Analyst at Bernstein & Co.: "While unpopular, the consistency is not entirely surprising. The government is prioritizing macroeconomic stability and global policy alignment. The minor relaxation on TDS criminal liability shows a slight, pragmatic shift in enforcement philosophy, but the core deterrent tax structure remains intact."
• Arjun Patel, Founder of a Gurugram-based Web3 Startup: "The hope for a rationalized TDS was the last thread. Now it's clear. We are advising all our portfolio companies to finalize plans for establishing legal entities offshore. You cannot build a viable trading or exchange business here under this tax burden."
• Neha Kapoor, Policy Researcher at CUTS International: "This is a cautious, wait-and-watch approach. The government is likely gathering more transaction data via the TDS mechanism and observing global regulatory developments. The message is: 'Comply now, reform later.' The risk is that by the time 'later' comes, the domestic industry may be irreversibly diminished."