India Budget 2026: Will Crypto Taxes Get a Reality Check?

With the Union Budget 2026 slated for February 1, 2026, India’s cryptocurrency community is on edge, desperate for a rethink of the brutal tax policies that have shackled the sector since 2022. The 30% capital gains tax, 1% Tax Deducted at Source (TDS) on every transaction, and the outright ban on offsetting losses have pushed many to the brink, and the industry is screaming for reforms that could redefine India’s role in the global blockchain revolution.

• Budget Timeline: Union Budget 2026 set for February 1, 2026.
• Tax Pain Points: Calls to slash 30% capital gains tax, rethink 1% TDS, and allow loss offsets.
• Offshore Fallout: Punitive taxes driving trading abroad, costing India transparency and economic wins.

The Tax Burden: A Crypto Guillotine

India’s crypto tax regime, rolled out in 2022, is nothing short of a financial chokehold on digital asset investors. A flat 30% capital gains tax on profits—regardless of how long you’ve held your Bitcoin or Ethereum—puts crypto in a harsher bracket than traditional investments like stocks, where long-term gains often see rates as low as 10-15%. Then there’s the 1% TDS, deducted upfront on every transaction, whether you’re buying, selling, or just swapping tokens. For the unversed, TDS means the government takes a slice of your transaction value before you even know if you’ll profit—think of it as paying a toll before reaching your destination. And the cherry on top? No provision to offset losses. If you tank on a risky altcoin trade, tough luck—you can’t deduct that loss from your taxable Bitcoin gains. It’s a triple whammy that’s left many Indian crypto users reeling.

Compare this to other asset classes, and the disparity is glaring:

• Stocks: Long-term capital gains taxed at 10-15% after a year, with loss offsets allowed.
• Real Estate: Long-term gains at 20% with indexation benefits to adjust for inflation.
• Crypto: Flat 30% on all gains, 1% TDS per trade, no loss relief—period.

Here’s the kicker: these rules aren’t just tough; they’re borderline hostile to a sector that thrives on volatility and experimentation. For a country with tens of millions of crypto users, this feels less like regulation and more like a deliberate attempt to snuff out innovation.

Hard Data: The KoinX Report Lays Bare the Disconnect

A new report by KoinX, a crypto tax reporting platform, titled “India’s Crypto Tax Story 2025,” pulls no punches in exposing the gap between policy and reality. Drawing on anonymized data from nearly 7 lakh Indian crypto users for FY 2024–25, it reveals how the current tax structure is financially crippling investors. A staggering number of users are stuck paying taxes on gains while unable to offset significant losses—a practice that’s standard in traditional markets. Imagine losing 80% of your portfolio in a market crash, only to owe 30% on the measly 20% you salvaged elsewhere. The report doesn’t just highlight pain; it screams for a policy reset, showing that the system ignores the rollercoaster nature of crypto trading. It’s not speculation; it’s survival, and the government seems blind to it.

Offshore Exodus: India’s Loss, Others’ Gain

Perhaps the most damning fallout of these taxes is the mass migration of trading activity to offshore platforms—exchanges based outside India, often in jurisdictions with softer rules like Dubai or Singapore. When staying compliant costs more than skirting the rules, even honest traders start looking elsewhere. Indian exchanges, once buzzing with potential, are bleeding volume to foreign competitors. The 1% TDS on every transaction acts like a slow poison, making domestic trading unviable for high-frequency users. The result? India loses transparency as transactions vanish into unregulated black holes, and the government forfeits tax revenue that could have been captured with a saner approach. It’s a self-inflicted wound, slashing at the economic benefits of a homegrown blockchain industry.

“India’s crypto policy needs to move toward market structure and sustainability, warning that current tax frictions are pushing compliant trading activity offshore.” – Manhar Garegrat, Country Head–India at Liminal Custody

Proposed Fixes: A VDA Transaction Tax Model

Industry voices are not just whining; they’re offering solutions. Manhar Garegrat of Liminal Custody, a crypto infrastructure provider, is pushing for a radical shift in how India taxes Virtual Digital Assets (VDAs)—the official term for cryptocurrencies and blockchain tokens under local law. Instead of the current transaction-level taxes like the 1% TDS, which hit every trade regardless of outcome, he advocates for a VDA transaction tax model.

“Rethink transaction-level taxes and consider a VDA transaction tax model to keep crypto activity onshore, transparent, and economically viable.” – Manhar Garegrat

What does this mean for the average trader? Think of it like a highway toll system: instead of paying at every turn, you pay based on the net journey—taxing outcomes rather than every step. This could mean a lower, more targeted levy on profits or specific transaction types, making compliance less of a burden while still ensuring the government gets its share. It’s a practical idea, echoing approaches in crypto-friendly nations like Switzerland, where nuanced policies have attracted talent and capital. With India’s massive user base, such a model could keep activity domestic, boost transparency, and position the country as a blockchain hub—if policymakers listen. For more on the upcoming budget discussions, check out the latest updates on India’s crypto tax policies.

Historical Context: From Ban to Burden

To understand the current mess, let’s rewind. India’s relationship with crypto has been rocky for years. In 2018, the Reserve Bank of India (RBI) banned banks from dealing with crypto exchanges, effectively choking the industry until the Supreme Court overturned it in 2020. That victory was short-lived; by 2022, the government introduced the 30% capital gains tax and 1% TDS, citing concerns over speculation and illicit use. Finance Minister Nirmala Sitharaman framed it as a way to temper a “risky” sector, pointing to money laundering and financial instability. Yet, nearly four years on, the industry argues these measures have overshot their mark, punishing legitimate players while scams continue to thrive in the shadows. The journey from outright bans to oppressive taxes shows a consistent thread: caution over innovation. Budget 2026 is a chance to rewrite that narrative.

The Government’s Dilemma: Risk vs. Reward

Let’s play fair and unpack the government’s side. Crypto isn’t all rainbows and Lambos; it’s a minefield of scams, hacks, and volatility. Indian investors have been burned by everything from shady Initial Coin Offerings (ICOs) to exchange collapses like WazirX, where millions in user funds vanished overnight in a 2024 breach. Regulators argue high taxes deter reckless speculation and force oversight—after all, every TDS transaction leaves a paper trail. Past statements from Sitharaman and RBI officials hammer home fears of crypto fueling black money or terror financing. These aren’t baseless worries; they’re real risks that demand a response.

But here’s where it falls apart: over-taxation isn’t the fix. It’s a sledgehammer approach that smashes legitimate innovation alongside bad actors. Targeted regulation—like robust Anti-Money Laundering (AML) and Know Your Customer (KYC) norms—could weed out fraud without alienating an entire industry. High taxes don’t stop scams; they just push honest users underground or offshore, where oversight is near zero. The government must balance protecting the public with fostering a tech revolution that’s already reshaping finance. Will Budget 2026 strike that balance, or double down on fear?

Global Lessons: What India Could Learn

India isn’t alone in grappling with crypto taxation, but it’s lagging behind peers who’ve found smarter paths. Singapore, for instance, exempts long-term crypto gains from taxation, treating digital assets as property rather than speculative gambles, while enforcing strict licensing for exchanges to curb fraud. The UAE has gone further, creating blockchain-friendly free zones with zero taxes to lure startups and talent. These nations aren’t ignoring risks; they’re managing them without killing growth. Portugal, once a crypto tax haven, adjusted its policies in 2023 to tax short-term gains at 28%—still lower than India’s 30%—while offering clarity and stability. India, with its tech-savvy population and remittance-heavy economy, could draw from these playbooks to craft a system that captures revenue without crushing potential. Why reinvent the wheel when proven models exist?

Beyond Traders: A Brain Drain in the Making

The tax burden doesn’t just hit traders; it’s a gut punch to India’s broader blockchain ecosystem. Startups building decentralized finance (DeFi) platforms, Web3 applications, or NFT marketplaces are choking under compliance costs, often relocating to friendlier shores like Singapore or Estonia. Developers who could be coding the next Ethereum-killer are packing their bags, and venture capital is following them. Take Polygon, an Indian-founded layer-2 solution for Ethereum—while it’s a global success, much of its growth happens outside India due to hostile policies. Then there’s the remittance angle: stablecoins like USDT could slash costs for India’s $100 billion remittance market, but punitive taxes make adoption a non-starter. This isn’t just about Bitcoin hodlers; it’s about losing an entire generation of innovators. If Budget 2026 doesn’t pivot, we’re staring at a tech brain drain that’ll haunt India for decades.

What If Taxes Don’t Change?

Now, consider the worst-case scenario. If Budget 2026 keeps the status quo—or, god forbid, tightens the screws—India risks becoming a crypto backwater. Trading volumes on domestic exchanges could plummet further, pushing more activity into unregulated offshore zones or outright black markets. Blockchain startups might abandon ship en masse, taking jobs and intellectual capital with them. Even Bitcoin, the gold standard of decentralized money, could see stunted adoption as new users shy away from the tax minefield. And let’s not forget enforcement: without onshore data, tracking illicit activity becomes a nightmare, ironically undermining the very oversight the government claims to want. It’s a dark road, and one India can’t afford to tread with the world racing toward a decentralized financial future.

A Bitcoin Maximalist Twist with Room for Diversity

As champions of decentralization, we lean hard into Bitcoin’s vision as the ultimate store of value and middle finger to centralized control. Some Bitcoin maximalists might scoff at altcoins or DeFi gimmicks, arguing they dilute the purity of peer-to-peer money. Fair enough—BTC is king. But let’s play devil’s advocate: India’s diverse needs, from cheap remittances to tech experimentation, mean Ethereum’s smart contracts and stablecoins have a role to play. Taxes that kill off this ecosystem don’t just hurt altcoin shillers; they could slow Bitcoin’s own mainstream traction if the broader blockchain space withers. A thriving crypto market lifts all boats, even the Bitcoin mothership. Budget 2026 needs to recognize that, or risk sinking the whole fleet.

Accelerating Forward: India’s Blockchain Destiny

Here’s the optimistic flip. If Budget 2026 eases these taxes, India could turbocharge its place in the next financial revolution. Blockchain isn’t just about trading; it’s about supply chain transparency, voting systems, and financial inclusion for the unbanked—areas where India, with its scale and challenges, could lead. Lighter, smarter taxes aligned with effective accelerationism could position the nation as a global leader, pulling in talent and investment while fast-tracking adoption. Imagine millions of Indians using Bitcoin for savings or stablecoins for daily payments, free from the shadow of a 30% tax axe. It’s not a pipe dream; it’s a future within reach—if the government dares to disrupt the status quo as boldly as crypto itself does.

No Room for Scammers, Full Stop

While we’re all for freedom and disruption, let’s be crystal clear: there’s zero tolerance for fraud in this space. India’s crypto scene has seen its share of shady operators—ponzi schemes dressed as “yield farms,” rug pulls, and fake exchanges preying on the naive. We stand for decentralization, not deception. Better tax policies aren’t about giving scammers a free pass; they’re about transparency. Onshore activity means more data for regulators to spot bad actors, paired with strong AML/KYC rules to boot them out. Harsh taxes don’t kill scams; they just drive them underground. Budget 2026 can fix that, championing real innovation while crushing the crooks.

Key Takeaways and Questions for Reflection

• What are the core crypto tax issues facing India in Budget 2026?
  The industry is battling a 30% capital gains tax, 1% TDS on every transaction, and no ability to offset losses, creating a hostile environment for Bitcoin and altcoin users alike.
• How do India’s crypto taxes impact Bitcoin and blockchain growth?
  Punitive policies are pushing trading to offshore platforms, slashing transparency and stunting domestic blockchain innovation, risking India’s edge in the global market.
• What reforms are crypto leaders pushing for in Budget 2026?
  Experts like Manhar Garegrat propose a VDA transaction tax model—a lighter, outcome-focused system—to keep activity onshore and build a sustainable crypto ecosystem.
• What evidence fuels the demand for crypto tax reform?
  The KoinX report, based on data from nearly 7 lakh users, exposes a jarring disconnect between tax rules and the financial realities of crypto trading in India.
• How do these taxes affect blockchain startups and DeFi in India?
  Beyond traders, harsh taxes threaten blockchain startups and DeFi projects, driving talent and capital abroad in a potential tech brain drain.
• Will India’s government rethink crypto taxes in Budget 2026?
  No official signals yet, leaving uncertainty on whether policymakers will prioritize Bitcoin and blockchain growth or cling to restrictive measures over perceived risks.

As February 1, 2026, looms, India stands at a pivotal moment. Will it embrace the decentralized wave, championing freedom, privacy, and disruption, or cling to policies that alienate innovators? We’re rooting for a future where Bitcoin and blockchain are not just tolerated but hailed as pillars of financial sovereignty. But let’s not delude ourselves—the path forward demands tough debates and tougher decisions. Stick with us as we track every twist in this high-stakes drama.