India’s 2026 Budget Leak: Crypto Regulation Takes Center Stage, Tax Hikes Sidelined
New Delhi pivots from punitive taxes to pragmatic policy—finally.
The Signals Are Clear
Forget another round of confiscatory tax rates. The 2026 budget draft circulating in Lutyens' Delhi reveals a stark shift in priority. The government's focus has swung from revenue extraction to framework construction. Insider whispers point to a comprehensive regulatory blueprint being the headline act, not another hike in the 1% TDS or the 30% capital gains levy that has stifled domestic exchange volumes for years.
Building Walls, Not Just Toll Booths
The move signals a maturation in India's approach. The earlier tax regime functioned like a toll booth on a dirt road—it collected revenue but did nothing to build the highway. Now, the intent appears to be laying the asphalt. Expect definitions for asset classification, operational guidelines for exchanges, and clearer investor protection mandates. It's a play for legitimacy, aiming to corral the chaotic domestic market into a monitored, taxable ecosystem. A classic case of wanting to regulate the casino properly once they realized how many chips were already on the table.
The Global Squeeze Play
This isn't purely domestic enlightenment. Pressure is mounting. Major financial hubs from Singapore to the UAE have established clear rules, siphoning talent and capital from India's shores. The fear isn't just lost innovation; it's becoming a regulatory backwater. The budget maneuver is a direct response—an attempt to stop the bleeding and reclaim a seat at the global digital finance table. They've watched the exodus, and the ledger doesn't lie.
A Cynical Win for Pragmatism
Make no mistake, this is bureaucracy catching up with reality, not a sudden embrace of crypto-anarchist ideals. The government finally calculated that killing the golden goose with taxes was less profitable than building a safer, more productive coop for it. It's a win for the industry, but one born from cold, hard cost-benefit analysis—the kind of finance that even the most traditional banker can understand, albeit with a sigh of resignation over their single malt.
Industry expects rationalization, not expansion
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.
Key budget 2026 expectations
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.
What qualifies as a virtual digital asset?
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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