Whalesbook
### The Urgency for Reform: A Budget 2026 Imperative
As India's Finance Minister Nirmala Sitharaman prepares to present the Union Budget 2026, the nation's cryptocurrency and Web3 industry is amplifying its call for a significant recalibration of existing tax policies. This push for reform emerges four years after India established a rigorous tax regime for virtual digital assets (VDAs), a framework that has since drawn considerable criticism for its impact on domestic market liquidity and user retention.
The current taxation structure, introduced in Budget 2022, imposes a flat 30% tax on VDA gains, disallows the offsetting of losses, and enforces a 1% Tax Deducted at Source (TDS) on transactions. While intended to enhance traceability, this has demonstrably led to a sharp decline in onshore trading volumes and a significant migration of users and capital to offshore platforms. Industry leaders argue that this has created a less competitive environment, pushing economic activity beyond India's regulatory perimeter and limiting the sector's contribution to the national economy.
### Key Industry Demands for Budget 2026
A consensus has formed among industry stakeholders regarding essential reforms needed to revitalize the domestic crypto and Web3 market. A primary demand centers on reducing transaction-level friction caused by the 1% TDS. Executives propose slashing this rate significantly, with suggestions ranging from 0.01% to 0.1%. Sumit Gupta, Co-founder of CoinDCX, stated that a lower TDS would retain monitoring capabilities while mitigating the primary incentive for offshore migration, thereby encouraging users to return to compliant Indian platforms.
Further calls include aligning the 30% capital gains tax with existing income tax slabs and, critically, allowing for the set-off and carry-forward of losses. Nischal Shetty, Founder of WazirX, emphasized that such provisions are crucial for restoring onshore liquidity and fostering institutional participation, noting the evolution of the Web3 landscape since 2022. ZebPay COO Raj Karkara echoed sentiments that rationalizing the tax structure would enhance predictability for investors and institutions alike, creating a more balanced investment environment.
Beyond taxation, there is a strong appeal for clearer, forward-looking regulatory guidelines that support responsible innovation. Avinash Shekhar, CEO of Pi42, suggested that Budget 2026 could signify India's transition towards global leadership in digital assets if policy direction is provided. A CoinSwitch survey indicated that 66% of crypto investors find the current regime unfair, with a significant portion advocating for crypto to be taxed similarly to other financial assets like equities and mutual funds, including comparable rates and loss adjustment rules.
### India's Position: High Adoption, Regulatory Gaps
India stands as a global leader in crypto adoption, ranking high for transactional activity and overall usage. With an estimated 100 million crypto users and a burgeoning Web3 sector aspiring to contribute to India's $5 trillion economy goal, the market exhibits substantial potential. The Financial Intelligence Unit (FIU-IND) has already implemented enhanced anti-money laundering (AML) measures, with exchanges registered as reporting entities and adopting stricter KYC protocols, including live selfies and geolocation checks.
However, despite this high adoption and existing compliance infrastructure, the industry argues that the tax framework remains a significant impediment. The current regime is perceived as disproportionately impacting retail investors, creating friction rather than fairness. A substantial volume of Indian trading activity, estimated at ₹5 lakh crore (approximately $5 trillion) between October 2024 and October 2025, has reportedly moved to offshore exchanges, circumventing domestic oversight and potentially impacting tax revenues and consumer grievance redressal. This shift highlights a critical juncture where policy must adapt to retain economic activity and foster innovation within India's regulated parameters.
### Forward Outlook: A Defining Budget for Digital Assets
Industry executives believe Budget 2026 presents a crucial opportunity for India to recalibrate its policy approach. By addressing the tax structure's transaction-level friction and permitting loss set-offs, the government could restore onshore liquidity and strengthen investor confidence. Global players are closely watching, with suggestions for a more holistic licensing and supervision model to emerge. The impending Economic Survey may offer early indications of the government's stance on digital assets, setting the stage for a budget that could either solidify India's position in the global digital asset economy or risk further ceding ground to more accommodating regulatory environments.