Published: January 30, 2026 | Updated: January 30, 2026 | Tapbit India Crypto Policy Desk
With India’s Union Budget 2026 scheduled for presentation on February 1, 2026, the country’s cryptocurrency industry is mounting its strongest coordinated push yet for meaningful tax and regulatory relief. The existing 30% flat tax on virtual digital assets (VDAs) and 1% TDS on every transfer — introduced in Budget 2022 — have driven significant trading volume offshore (to Dubai, Singapore, Mauritius) and stifled domestic liquidity. Industry leaders, exchanges (WazirX, CoinDCX, Mudrex), and advocacy groups (BACC, IAMAI) are now demanding:
- Reduction of TDS from 1% to 0.01–0.1%
- Allowance for loss set-off against gains (currently prohibited)
- Clarification on classification and reporting obligations under Section 285BAA (effective April 2026)
- Alignment with global norms (capital gains treatment instead of income from other sources)
- Regulatory clarity to enable onshore institutional participation and custody services
This article analyzes the current tax framework, the industry’s unified demands, global comparisons, likely Budget outcomes, and what the crypto ecosystem in India should prepare for in the coming weeks.
Current Crypto Tax & TDS Framework in India (as of Jan 2026)
| Provision | Details | Effective From | Industry Pain Point |
|---|---|---|---|
| 30% Flat Tax on VDA Income | Taxed as “Income from Other Sources” — no deductions except cost of acquisition | April 1, 2022 | No loss set-off → forces profitable traders to pay even in net-loss years |
| 1% TDS on VDA Transfers | 1% deducted on sale consideration > ₹10,000 (or ₹50,000 for specified persons) | July 1, 2022 | Cash-flow killer; drives volume to offshore platforms |
| Section 285BAA Reporting | Exchanges must report all transactions > ₹50,000 to Income Tax Dept | April 1, 2026 | Increased compliance burden; privacy concerns |
| No Indexation Benefit | No inflation adjustment on cost of acquisition | April 1, 2022 | Effective tax rate much higher than 30% in long holds |
Result: India’s crypto trading volume has fallen sharply onshore while offshore platforms (Binance, Bybit, KuCoin, etc.) have captured the majority share — estimated 70–80% of Indian retail activity.
Industry Demands for Budget 2026 – Unified Industry Position
The Blockchain and Crypto Assets Council (BACC), Internet and Mobile Association of India (IAMAI), and leading exchanges have submitted a joint memorandum to the Finance Ministry. Core asks:
- TDS Reduction: From 1% to 0.01–0.1% (aligned with securities TDS rates)
- Loss Set-Off Allowed: Permit offsetting VDA losses against VDA gains (current rule prohibits this)
- Capital Gains Treatment: Classify long-term VDA holdings (held >36 months) as capital gains with indexation benefit
- Clarity on Section 285BAA: Simplify reporting thresholds and protect user privacy
- Regulatory Sandbox: Allow testing of crypto custody, lending, and staking products under RBI/SEBI oversight
- Tax Amnesty / One-Time Relief: Waive penalties for past non-compliance to encourage voluntary disclosure
Key voices:
- Nischal Shetty (WazirX): “1% TDS is killing Indian exchanges. Reduce to 0.1% and allow loss set-off — volume will return onshore overnight.”
- EY India Report: “Current framework drives 70%+ volume offshore. Rationalisation could add ₹10,000–15,000 crore in annual tax revenue through higher compliance.”
- Sumit Gupta (CoinDCX): “We need a clear licensing path for crypto businesses — Budget 2026 is the last realistic window before mass exodus.”
Global Comparison – Where India Stands
| Jurisdiction | Capital Gains Tax Rate | Loss Set-Off Allowed? | TDS / Transaction Tax? | India Relative Position |
|---|---|---|---|---|
| United States | 0–37% (long-term 0–20%) | Yes | No | More favorable |
| Singapore | 0% (no capital gains tax) | Yes (if classified as trading income) | No | Highly attractive |
| United Arab Emirates | 0% | Yes | No | Major offshore destination for Indians |
| Portugal (pre-2023) | 0% | Yes | No | Changed to 28% in 2023 |
| India (current) | 30% flat | No | 1% TDS | Among the most punitive globally |
India’s current framework is widely regarded as one of the harshest among major economies, driving significant volume migration offshore.
Likely Budget 2026 Outcomes – Realistic Scenarios
Given political realities, fiscal constraints, and the government’s desire to retain tax revenue:
- Most Likely (Base Case): TDS reduced to 0.1% (symbolic relief), loss set-off permitted only against future VDA gains (not other income heads), no change to 30% rate, stronger Section 285BAA enforcement.
- Optimistic Scenario: TDS cut to 0.01%, loss set-off allowed across years, long-term capital gains treatment (20% with indexation) for holdings >36 months.
- Pessimistic Scenario: No change to TDS or tax rate; stricter KYC/AML reporting and penalties for offshore trading.
Finance Minister Nirmala Sitharaman has historically favored incremental changes over sweeping reform — expect measured relief rather than wholesale liberalization.
Trading & Positioning Strategies on Tapbit
- Sign Up on Tapbit (0% maker fees)
- Deposit USDT or INR via bank transfer / UPI / P2P
- Pre-Budget hedge: Long BTC/USDT or ETH/USDT perpetuals (20–50x) if tax relief is priced in
- Post-Budget reaction: Buy dips on positive surprise; short on disappointment
- Stablecoin parking: Hold USDT/USDC → earn yield via Tapbit Earn while waiting for Budget clarity
- Risk control: Max 1–2% account risk per trade; trailing stops around key levels
FAQs – India Budget 2026 Crypto Expectations
Will Budget 2026 reduce the 30% crypto tax?
Unlikely full removal. More realistic: long-term capital gains treatment (20% with indexation) for holdings >36 months, or status quo with minor relief.
Is TDS likely to be cut from 1%?
High probability of reduction to 0.1% or 0.01% — industry consensus demand and political feasibility make this the most likely change.
Will loss set-off be allowed?
Possible — allowing VDA losses to offset future VDA gains is the most frequently cited reform and has precedent in other asset classes.
How will Budget 2026 affect crypto trading volume in India?
Any TDS cut or loss set-off permission would likely bring 30–60% of offshore volume back onshore within 6–12 months, boosting domestic exchanges and liquidity.
Conclusion & What to Expect on February 1, 2026
India’s cryptocurrency ecosystem — despite having the world’s highest adoption rate by transaction volume — has been severely constrained by the 30% flat VDA tax and 1% TDS since 2022. The upcoming Union Budget on February 1, 2026, represents the most realistic window for meaningful reform before the 2024 tax regime becomes politically entrenched. Industry leaders are unified in their demands: TDS reduction to 0.01–0.1%, loss set-off allowance, long-term capital gains treatment, and clearer regulatory pathways. While full tax abolition is unrealistic, incremental relief (especially on TDS) is probable and could trigger a significant onshore volume rebound.
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Disclaimer: Cryptocurrency trading involves significant risk of loss. Tax laws and Budget announcements are subject to official confirmation and may change. This article is for informational purposes only and does not constitute investment, tax, or legal advice. Always consult a qualified professional and conduct your own research (DYOR) before making decisions.
