anjir abdul
The current Indian crypto tax framework, unilaterally introduced in 2022, has been a contentious point for the industry since its inception. It imposes a flat 30% tax on all crypto gains, treating them akin to lottery winnings, regardless of the investment horizon or the nature of the asset. Compounding this burden, a 1% Tax Deducted at Source (TDS) is applied to virtually all transactions, a levy that applies whether a trade is profitable or results in a loss. Critically, and perhaps most detrimentally to active traders and investors, the framework explicitly prohibits the offsetting of losses from crypto trades against gains, a standard practice in traditional financial markets globally. This means an investor could incur substantial losses over a year but still be taxed on any isolated profitable trades, creating an incredibly challenging and often unprofitable environment for participants.
Executives from India’s major domestic crypto exchanges assert that this punitive tax regime, particularly the transaction-level TDS and the draconian restrictions on loss set-offs, is fundamentally misaligned with the rapid evolution of the global digital asset market and, ironically, undermines India’s own commendable progress in strengthening oversight and enforcement within the sector. They emphasize that the global crypto landscape has matured significantly, witnessing increased institutional adoption, clearer regulatory stances in many jurisdictions, and the emergence of sophisticated Web3 technologies. India’s framework, in contrast, remains rooted in an early, cautious, and largely revenue-centric approach that fails to acknowledge these developments.
This renewed and urgent push for reform arrives as policymakers are in the final stages of deliberating fiscal priorities for the upcoming financial year. The Union Budget of India, widely anticipated as the singular and most effective avenue for meaningful tax recalibration without necessitating entirely new legislation, represents a critical juncture for the industry. The opportunity to adjust these tax provisions within the budget framework is seen as a rare window to prevent further erosion of India’s position in the global crypto economy.
The core argument put forth by exchanges is that the sustained pressure exerted on compliant, regulated platforms within India, primarily through these prohibitive tax measures, carries an inherent and severe risk: it will inevitably push liquidity, active users, and crucial innovation offshore. Such an exodus would effectively undermine the very oversight and enforcement goals that Indian regulators are diligently attempting to achieve. If domestic, KYC-compliant platforms become economically unviable, users will naturally migrate to unregulated foreign exchanges or peer-to-peer channels, making it far harder for authorities to track transactions, prevent money laundering, and ensure investor protection.
In a comprehensive statement shared with Cointelegraph, Nischal Shetty, the visionary founder of WazirX, one of India’s largest domestic crypto exchanges, articulated that India possesses a unique and timely opportunity to refine its crypto framework. This refinement, he argued, must strike a delicate balance between robust enforcement mechanisms and fostering genuine innovation. "As India prepares for Budget 2026, there is a clear opportunity to fine-tune a framework which supports transparency and compliance while fostering innovation," Shetty stated, underscoring the potential for a more harmonious regulatory ecosystem.
Shetty further elaborated on the necessity of reassessing the current regime, urging that it be brought "in line with how Web3 has matured over the last couple of years globally." He highlighted the increased institutional adoption of digital assets and the evolving regulatory landscapes in other leading economies as benchmarks India should consider. His specific proposals included a "calibrated reduction in transaction-level TDS" and a comprehensive "review of loss off-set provisions." Shetty firmly believes that implementing these changes would be instrumental in restoring onshore liquidity, significantly improving compliance by incentivizing users to remain within regulated Indian platforms, and ultimately ensuring that a greater share of the economic activity generated by the digital asset sector remains within India’s borders, contributing to its economy.
Echoing these sentiments, Raj Karkara, the Chief Operating Officer of another prominent Indian crypto exchange, ZebPay, characterized the upcoming budget as a "pivotal moment" for the entire sector. Karkara emphasized the transformative potential of tax rationalization: "A rationalisation of the current 1% TDS on crypto transactions could meaningfully improve liquidity and encourage stronger onshore participation." He further stressed that a critical review of the flat 30% tax on crypto gains would be vital in creating a more predictable and attractive investment environment, one that encourages long-term participation rather than discouraging it.
Adding an international perspective, SB Seker, the Head of APAC at global crypto exchange Binance, articulated that the forthcoming budget offers a crucial chance to recalibrate India’s crypto tax framework to align more effectively with the growing retail participation in digital assets. Seker advocated for a more "pragmatic approach," one that primarily focuses on capital gains actually realized by investors, allows for limited loss set-offs, and crucially, eliminates transaction-level levies like the 1% TDS. Such an approach, he argued, would dramatically improve fairness for users and signal a decisive shift away from what he candidly termed a "tax-and-deter" regime – a framework designed more to discourage activity than to regulate and benefit from it.
Seker also underscored the broader benefits of a more rational tax structure: "Clear, consistent operating standards for VDA platforms, aligned with India’s AML/KYC and investor protection priorities, will encourage responsible capital investment, create skilled jobs, and build domestic capabilities." This holistic vision suggests that a well-thought-out tax policy is not just about revenue but about fostering a thriving, compliant, and innovative ecosystem that contributes to national economic growth and technological leadership.
These fervent calls for tax reform are particularly salient given the backdrop of increasingly stringent compliance requirements being imposed on crypto platforms within India. Just recently, India’s Financial Intelligence Unit (FIU) introduced a new set of Know Your Customer (KYC) rules that significantly elevate the verification standards for users. These mandates now require exchanges to verify users through live selfie checks, precise geolocation and IP tracking, comprehensive bank account verification, and additional government-issued identification. While the industry largely supports robust AML/KYC measures, the juxtaposition of tightening compliance with an economically prohibitive tax regime creates a paradox where compliant platforms face immense operational and financial pressure.
Simultaneously, tax authorities have continued to voice their concerns regarding the digital asset sector’s perceived impact on enforcement and revenue collection. On January 8, officials from India’s Income Tax Department reportedly warned lawmakers about the inherent complexities posed by offshore exchanges, private wallets, and decentralized finance (DeFi) tools, all of which complicate efforts to accurately track and tax crypto income. The industry’s argument is that a more sensible tax framework, by bringing activity back onshore to regulated exchanges, would actually assist the Income Tax Department by centralizing data, improving transparency, and making it far easier to track taxable income and ensure compliance, rather than pushing it into the shadows.
The potential economic ramifications of maintaining the current tax regime are substantial. If a significant portion of crypto trading and innovation is driven offshore, India stands to lose not only potential tax revenue from a thriving digital economy but also opportunities for job creation, foreign investment, and the development of cutting-edge Web3 technologies. This could hinder India’s ambition to become a global tech and financial hub, particularly in the rapidly evolving digital asset space. Investor sentiment, both retail and institutional, remains fragile under the current framework, discouraging long-term commitment and growth within the Indian crypto market.
In conclusion, the upcoming Union Budget presents a critical moment for India’s crypto industry and, by extension, its digital economy. The pleas from domestic and international exchanges for a more pragmatic, equitable, and forward-looking tax framework underscore a clear disconnect between the existing punitive measures and the rapidly maturing global and domestic crypto landscape. A recalibration of the 30% flat tax, a rationalization of the 1% TDS, and the introduction of loss offset provisions are not merely industry demands; they are presented as essential steps to foster onshore liquidity, encourage responsible innovation, enhance regulatory compliance, and position India as a leader in the global digital asset revolution, rather than an outlier. The decisions made in this budget will profoundly shape the trajectory of India’s crypto future for years to come.
