India's Finance Minister Nirmala Sitharaman, in the Union Budget for the fiscal year 2026-27, has decisively upheld the country's stringent cryptocurrency taxation framework, disappointing industry hopes for reform. The budget, presented on February 1, 2026, leaves the core tax structure for Virtual Digital Assets (VDAs) unchanged, reinforcing a regulatory approach focused on oversight rather than market stimulation.
The existing rules mandate a flat 30% tax on all crypto gains, irrespective of holding period, and maintain the controversial 1% Tax Deducted at Source (TDS) on sales. Investors remain barred from offsetting losses across different crypto assets or carrying losses forward, and deductions are narrowly limited to the direct cost of acquisition, excluding transaction fees.
While tax rates were untouched, the 2026 budget introduced a stricter compliance regime under Section 509 of the Income-tax Act, effective April 1, 2026. New penalties target reporting accuracy: entities required to file crypto transaction statements face a daily fine of ₹200 (approx. $2.20) for non-compliance. Providing inaccurate information or failing to correct errors will trigger a flat penalty of ₹50,000 (approx. $545) per instance.
The industry reaction has been broadly negative. Market participants, including local exchange CoinSwitch, argue that the unchanged 1% TDS continues to fragment liquidity and incentivize traders to migrate to offshore exchanges. Industry estimates suggest over $42 billion in trading volume shifted to foreign platforms between mid-2022 and mid-2023, a trend feared to persist. Ashish Singhal, co-founder of CoinSwitch, stated the framework "creates friction rather than fairness" and proposed reducing the TDS to 0.01% to improve liquidity.
The government's move prioritizes regulatory consistency and enforcement, offering clarity but no relief to a domestic crypto industry that views the regime as among the most restrictive globally.
