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19 Jan 2026·Source: The Hindu
3 min
EconomyNEWS

Crypto Industry Seeks Tax Tweaks in Budget 2026 for Growth

Crypto industry urges tax adjustments in Budget 2026 to boost domestic investment.

Crypto Industry Seeks Tax Tweaks in Budget 2026 for Growth

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India's cryptocurrency industry is advocating for policy adjustments in the upcoming Budget 2026 to prevent capital outflow and promote domestic investment while adhering to regulatory standards. Key concerns include the current 1% Tax Deducted at Source (TDS) on every transaction and a 30% tax on profits without loss offset provisions. Industry players argue these measures are restrictive, pushing investors to foreign exchanges.

They propose reducing transaction-level TDS and reviewing loss set-off provisions to restore onshore liquidity and improve compliance. Data indicates crypto transactions in India crossed ₹50,000 crore in FY 2024-25, highlighting the need for a supportive regulatory framework.

Key Facts

1.

Crypto TDS: 1% on transactions, 30% on profits

2.

Crypto transactions: Crossed ₹50,000 crore in FY25

3.

Industry wants: Lower TDS, loss set-off provisions

UPSC Exam Angles

1.

GS Paper III: Indian Economy - Taxation, Investment Models

2.

Connects to financial inclusion, digital economy, and regulatory frameworks

3.

Potential question types: Analytical, statement-based, critical evaluation of government policies

Visual Insights

More Information

Background

The genesis of cryptocurrency taxation in India can be traced back to the global rise of digital assets in the late 2000s and early 2010s. Initially, there was a lack of regulatory clarity, leading to uncertainty about their legal status and tax treatment. The Income Tax Act, 1961, did not explicitly address cryptocurrencies.

Over time, as crypto adoption grew, the need for regulation became apparent. Early discussions focused on whether to classify cryptocurrencies as currencies, commodities, or securities. The lack of a clear definition complicated tax implementation.

The first significant step towards regulation came with the introduction of taxation on virtual digital assets (VDAs) in the Finance Act 2022, marking a formal recognition of crypto assets for tax purposes.

Latest Developments

In the past 2-3 years, the crypto industry has witnessed significant volatility and regulatory scrutiny. Globally, there's an ongoing debate about the appropriate level of regulation, balancing innovation with investor protection. In India, the Reserve Bank of India (RBI) has expressed concerns about the potential risks of cryptocurrencies to financial stability.

The introduction of TDS and the 30% tax rate have led to a decline in trading volumes on Indian exchanges, as investors seek more favorable tax regimes in other jurisdictions. Future outlook involves potential refinements to the tax framework based on industry feedback and evolving global standards. The government may consider a more nuanced approach to taxation, possibly differentiating between various types of crypto assets and their use cases.

Further, the development of a comprehensive regulatory framework is expected to provide greater clarity and certainty to the industry.

Frequently Asked Questions

1. What are the key facts about cryptocurrency taxation in India that are important for UPSC Prelims?

For Prelims, remember these key facts: the current Tax Deducted at Source (TDS) on crypto transactions is 1%, and the tax on profits is 30%. Also, note that crypto transactions in India crossed ₹50,000 crore in FY 2024-25. The industry is advocating for loss set-off provisions.

2. What is Tax Deducted at Source (TDS) in the context of cryptocurrency transactions, and why is it important?

TDS is a tax that is deducted at the source of income. In the context of crypto, a 1% TDS is applied to every transaction. It is important because the crypto industry believes the current TDS rate is restrictive and pushes investors to foreign exchanges.

3. Why is the cryptocurrency industry seeking tax tweaks in Budget 2026?

The industry seeks tax adjustments to prevent capital outflow, promote domestic investment, and improve compliance. Key concerns are the 1% TDS on every transaction and the 30% tax on profits without loss offset provisions. They argue these measures are restrictive.

4. What are 'loss set-off provisions' in the context of crypto taxation, and why are they important?

Loss set-off provisions allow investors to offset losses from one investment against profits from another, reducing their overall tax liability. The crypto industry wants these provisions reviewed because currently, the 30% tax on profits does not allow for loss set-off, which they believe is detrimental to onshore liquidity.

5. What are the potential pros and cons of reducing the TDS on cryptocurrency transactions in India?

Reducing TDS could incentivize domestic investment and restore onshore liquidity, potentially boosting the Indian crypto market. However, a lower TDS could also reduce tax revenue for the government and potentially increase speculative trading, requiring careful consideration.

6. What reforms, beyond TDS reduction, might be needed to create a supportive regulatory framework for the crypto industry in India?

Based on available information, reforms might include clear guidelines on the classification of crypto assets, provisions for loss set-off, and a balanced approach to regulation that encourages innovation while protecting investors. The industry also needs a consistent and predictable regulatory environment.

7. What is the significance of the ₹50,000 crore crypto transaction figure in FY 2024-25?

The ₹50,000 crore figure highlights the growing volume of crypto transactions in India, indicating a substantial market presence. This underscores the need for a supportive regulatory framework to manage and benefit from this activity.

8. What are the recent developments regarding cryptocurrency regulation in India?

Recent developments include the crypto industry's appeal for tax adjustments in the upcoming Budget 2026. The Reserve Bank of India (RBI) has also expressed concerns about the potential risks of cryptocurrencies to financial stability. The introduction of TDS and the 30% tax are also recent developments.

9. What is the historical background of cryptocurrency taxation in India?

The genesis of cryptocurrency taxation in India can be traced back to the global rise of digital assets. Initially, there was a lack of regulatory clarity, leading to uncertainty about their legal status and tax treatment. The Income Tax Act, 1961, did not explicitly address cryptocurrencies.

10. According to the article, who are some of the key personalities involved in advocating for changes to cryptocurrency taxation?

As per the topic data, Nischal Shetty, Raj Karkara, and SB Sekar are key personalities in the crypto industry.

Practice Questions (MCQs)

1. Consider the following statements regarding the taxation of Virtual Digital Assets (VDAs) in India: 1. A flat 30% tax is levied on income from the transfer of VDAs. 2. Losses from the transfer of VDAs can be set off against other income. 3. A 1% Tax Deducted at Source (TDS) is applicable on the transfer of VDAs above a specified threshold. Which of the statements given above is/are correct?

  • A.1 only
  • B.1 and 3 only
  • C.2 and 3 only
  • D.1, 2 and 3
Show Answer

Answer: B

Statement 1 is correct as a flat 30% tax is levied on income from the transfer of VDAs. Statement 3 is also correct as a 1% TDS is applicable. Statement 2 is incorrect because losses from VDAs cannot be set off against other income.

2. Which of the following statements best describes the primary concern of the cryptocurrency industry regarding the current tax regime in India?

  • A.High compliance costs due to complex reporting requirements.
  • B.The lack of clarity on the legal status of cryptocurrencies.
  • C.Restrictive tax measures leading to capital outflow and reduced domestic investment.
  • D.Insufficient government support for blockchain technology development.
Show Answer

Answer: C

The primary concern is that the current tax measures, such as the 30% tax and 1% TDS, are restrictive, leading to capital outflow as investors seek more favorable tax regimes in other countries.

3. Consider the following statements: Assertion (A): The cryptocurrency industry in India is advocating for a reduction in the 1% Tax Deducted at Source (TDS) on crypto transactions. Reason (R): The high TDS rate increases the transaction cost and reduces liquidity in the Indian crypto market. In the context of the above, which of the following is correct?

  • A.Both A and R are true, and R is the correct explanation of A.
  • B.Both A and R are true, but R is NOT the correct explanation of A.
  • C.A is true, but R is false.
  • D.A is false, but R is true.
Show Answer

Answer: A

Both the assertion and the reason are true, and the reason correctly explains why the industry is advocating for a reduction in TDS. The high TDS rate does increase transaction costs and reduces liquidity.

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