India’s current crypto tax regime is among the harshest globally and may drive capital offshore.
India’s Budget 2026 is widely expected to focus on rationalization and regulatory clarity for cryptocurrencies, rather than introducing harsher tax measures.
The current tax treatment of Virtual Digital Assets has attracted ongoing criticism for stifling market efficiency and effective local market participation. Against this background, Budget 2026 is seen as a potential inflection point for the Indian crypto framework.
Although the government has not formally outlined any crypto-related proposals. Budget 2026 is likely to focus on simplification and clarity as India’s digital asset market matures. “A major expectation is the rationalization of the 1% TDS under Section 194S,” said CA Mohit Gupta, Partner at PNAM & Co LLP. He added that the current rate has decreased liquidity, increased bid-ask spreads, and driven trading activity to offshore platforms.
According to him, the industry is expecting a lower rate or a higher threshold. Under the current structure, losses from VDA transactions are not allowed to be set off against gains from other VDAs or carried forward to other years.
Aishwary Gupta, Global Head of Payments and RWAs at Polygon Labs, highlighted some areas the industry is looking at for reform in Budget 2026. Key expectations include permitting VDA losses to be offset by VDA gains, lowering the 1% TDS to 0.01%-0.1%. Additionally, permitting transaction costs, such as gas fees, to be included in the cost basis.
Gupta also pointed to differences between the Indian crypto tax regime and international practices. Countries like the UAE and Singapore impose no tax on individual gains from crypto, while others, like the US, UK, and Germany, have capital gains frameworks that permit offsetting losses or holding-period gains.
India currently levies a flat tax of 30% on VDA gains, with no loss offset or holding-period relief. According to Gupta, the sector hopes the framework will be more balanced, facilitating compliance while limiting capital flight to offshore platforms.
Any transfer of VDAs is taxed under Section 115BBH of the Income-tax Act, 1961, at a flat rate of 30%, plus applicable surcharge and cess. Losses incurred from VDA transactions cannot be set off against any other income or carried forward. Deductions are limited to the cost of acquisition, and no allowance is made for transaction fees or other expenses. Gifting VDAs is subject to tax if their value exceeds ₹50,000.
The concept of VDAs was introduced by the Finance Act, 2022, which added Section 2(47A) to the Income-tax Act, 1961. Under this provision, VDAs include any type of information, code, number, or token produced by cryptographic or similar means that represents value and which may be transferred or stored in electronic forms. Indian and foreign currencies are clearly excluded, and the government has the power to notify further such exclusions.
Assets covered under the VDA framework include cryptocurrencies, utility tokens, governance tokens, NFTs (with limited exceptions), and stablecoins such as USDT and USDC. The Indian Digital Rupee (CBDC) is excluded.
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