India's cryptocurrency industry is making a concerted, last-minute push for a significant overhaul of the nation's tax framework ahead of the Union Budget 2026, scheduled for presentation on February 1. Industry leaders argue that the current punitive regime is driving liquidity and users offshore, undermining the very regulatory oversight the government seeks to strengthen.
The current tax structure, implemented in 2022, imposes a flat 30% tax on all crypto gains and a 1% Tax Deducted at Source (TDS) on nearly all transactions, regardless of profitability. A critical point of contention is that losses from trades cannot be used to offset gains, a rule executives say is out of step with global financial markets and India's own maturing regulatory landscape.
Executives from major domestic and international exchanges have submitted pre-budget recommendations. Nischal Shetty, founder of WazirX, stated the budget presents a "clear opportunity to fine-tune a framework which supports transparency and compliance while fostering innovation." He called for a calibrated reduction in the 1% TDS and a review of loss set-off provisions to restore onshore liquidity.
Raj Karkara, COO of ZebPay, echoed this, calling the upcoming budget a "pivotal moment" and arguing that rationalizing the TDS "could meaningfully improve liquidity and encourage stronger onshore participation." He also advocated for aligning the 30% capital gains tax with other asset classes.
SB Seker, head of APAC at Binance, proposed a more fundamental shift, urging India to move "past the tax-and-deter regime towards a fuller license-and-supervise one." He suggested focusing taxation on realized capital gains and removing transaction-level levies to improve fairness for retail participants.
This lobbying effort coincides with a period of heightened regulatory scrutiny. On January 8, India's Financial Intelligence Unit (FIU) introduced stringent new Know Your Customer (KYC) rules, mandating live selfie checks, geolocation and IP tracking, bank account verification, and additional ID checks for crypto exchange users.
Simultaneously, tax authorities have voiced concerns about enforcement challenges. Officials from the Income Tax Department warned lawmakers that offshore exchanges, private wallets, and DeFi tools complicate efforts to track taxable crypto income, describing the transfers as "anonymous, borderless and near-instant."
Despite the industry's legal status and growing adoption—with 49 exchanges registered with the FIU in FY 2024-25—India maintains one of the world's strictest crypto tax regimes. The Reserve Bank of India has separately cautioned in its Financial Stability Report that privately issued stablecoins threaten financial stability and that central bank digital currencies (CBDCs) should take precedence.
While expectations for major tax changes remain modest due to revenue pressures, the industry sees the February 1 budget as one of the few avenues for meaningful recalibration without requiring new legislation.
