India Faces Strain to Rethink Crypto Taxes Forward of Union Funds as Buying and selling Shifts Offshore – Decrypt

As India approaches this yr’s Union Funds, policymakers are beneath stress to reassess the nation’s punitive crypto tax framework amid capital flight to offshore platforms, elevating questions on misplaced tax income and weakened regulatory oversight.

Indian crypto customers execute practically three-quarters of their crypto quantity offshore, round $6.1 billion (₹51,252 crore), with simply 27.33% remaining on home platforms, based on a report from crypto tax platform KoinX.

Finance Minister Nirmala Sitharaman is ready to current her ninth consecutive price range on Sunday, a primary in over 20 years, with the crypto business looking ahead to reduction from a tax regime that has gutted home buying and selling volumes and pushed exercise to international exchanges accessed through VPNs.

Regardless of rating first in grassroots crypto adoption based on Chainalysis’ figures, India’s tax-heavy, policy-light method has created a regulatory limbo that contrasts with structured frameworks rising throughout Asia. 

“India’s VDA ecosystem is at a pivotal stage, with rising adoption throughout the nation; nevertheless, the present tax framework presents challenges for retail members by taxing transactions with out recognising losses, creating friction quite than equity,” Ashish Singhal, co-founder of crypto trade CoinSwitch, advised Decrypt.

The three broad requests for the 2026 Funds embrace tax rationalisation via “lowered Tax Deducted at Supply (TDS) and permitting loss set-offs; a regulatory mechanism for the sector; and inspiring blockchain adoption, each permissioned and permissionless,” Dilip Chenoy, Chairman of Bharat Web3 Affiliation, advised Decrypt.

The 2022 tax hammer

In February 2022, the authorities introduced a 30% tax on crypto revenue, with no deductions or exemptions.

“No deduction in respect of any expenditure or allowance shall be allowed whereas computing such revenue besides value of acquisition,” Sitharaman famous in her Funds 2022 presentation.

The minister specified that gifting of digital digital property can be taxed on the recipient’s finish, whereas losses couldn’t be set off in opposition to another revenue. Traders could not present losses from value drops or hacking incidents to offset taxation on income.

The 1% TDS has hammered high-frequency merchants and liquidity suppliers who function on skinny margins, making their enterprise fashions unsustainable on home platforms.

The regime tightened within the 2025 Union Funds, when undisclosed crypto positive aspects have been introduced beneath Part 158B of the Revenue Tax Act, enabling retrospective audits on transactions relationship again 48 months. 

Traders who didn’t report positive aspects face a 70% penalty on unpaid taxes.

Rationalisation, Not Rollback

A nationwide survey carried out by CoinSwitch revealed deep dissatisfaction with the present crypto tax framework. 

Almost 66% of the 5,000 members contemplate the tax regime unfair, with 53% describing it as “very unfair,” and about 59% report lowered participation resulting from taxation, based on the report.

Over 80% search modifications within the upcoming Union Funds, 48% search a decrease tax price than 30%, 18% need the power to set off losses, 16% need lowered TDS, and a robust 61% favour taxing crypto equally to equities or mutual funds.

“A discount in TDS on VDA transactions from 1% to 0.01% may enhance liquidity, ease compliance, and improve transparency whereas preserving transaction traceability,” Singhal stated, including that growing the TDS threshold to about $5,444 (₹5 lakh) may protect smaller buyers from bearing an outsized tax burden.

In the meantime, CA Sonu Jain, chief danger and compliance officer at 9Point Capital, advised Decrypt the present construction has “failed its twin targets of monitoring transactions and discouraging hypothesis.”

“As a substitute, it has resulted in a near-complete migration of VDA exercise to offshore platforms, the place transactions are neither successfully trackable nor regulated beneath Indian legislation,” Jain stated.

“Paradoxically, the compliance burden has fallen disproportionately on law-abiding taxpayers who continued utilizing regulated platforms, and these customers have confronted elevated tax notices, scrutiny, and enforcement actions, which have created a notion of mistrust in direction of trustworthy taxpayers,” he stated.

“What India wants proper now could be a good, trust-based tax and regulatory framework. Crypto is a brand new asset class, and with out belief between taxpayers and the Income, enforcement will stay inefficient and counter-productive,” he added.

Jain known as for revisiting how crypto losses are handled beneath Part 115BBH, noting they need to align with the taxation of shares and securities. 

He additionally instructed changing the 1% TDS with information-based reporting programs like Assertion of Monetary Transactions, that are already utilized in capital markets.

“A proper regulatory framework, at the very least for shopper safety and platform accountability, is important to revive confidence, convey exercise again onshore, and enhance long-term tax compliance,” he added.

Aishwary Gupta, International Head of Funds & RWAs at Polygon Labs, advised Decrypt the business seeks “pragmatic coverage reset balancing innovation with safeguards.”

He additionally pointed to TDS discount as a possible lever, echoing Singhal’s view that it may ease liquidity constraints and cut back incentives for offshore buying and selling.

He stated there’s a robust case to “revisit India’s flat 30% tax on crypto positive aspects and permit loss set-offs,” saying it might convey VDAs nearer to the tax therapy of conventional monetary property.

Other than tax issues, the true precedence is regulatory readability, Gupta added, urging India to assist stablecoin funds and asset tokenisation beneath current funds and securities frameworks quite than crypto-specific guidelines.

Enforcement Failures

Earlier this month, tax authorities offered issues to the parliamentary standing committee of finance, citing enforcement challenges together with borderless transfers, pseudonymous addresses, and transactions exterior regulated banking channels, based on a Occasions of India report.

“The Finance Ministry desires to curb decentralisation, privacy-focused programs, and offshore exchanges; the FIU and Revenue Tax Division are on the identical web page,” a supply advised Decrypt on the time.

International Divergence

India’s punitive stance contrasts with different main economies, and different Asian jurisdictions like Japan and Hong Kong have moved towards structured licensing regimes to draw digital asset companies.

India’s Financial Affairs Secretary Ajay Seth acknowledged early final yr that India is reconsidering its crypto stance following main world shifts.

Nonetheless, the dialogue paper on digital property, initially set for a September 2024 launch, stays delayed.

“The deeper coverage danger is that sustained opposition and not using a parallel regulatory pathway will push innovation, capital, and expertise offshore, leaving India as a shopper and tax collector of crypto exercise quite than a rule-setter,” Raj Kapoor, founder and CEO of the India Blockchain Alliance, beforehand advised Decrypt.

Regardless of amassing roughly $5.2 million (₹437.43 crores) via crypto taxation, India lacks significant regulatory frameworks to guard customers or foster innovation.

As Sitharaman prepares to current the Union Funds 2026, the crypto business stays cautiously hopeful that the federal government will acknowledge structural flaws and contemplate reforms balancing income with investor safety and competitiveness of India’s onshore crypto markets.