Whalesbook
Industry Pressure Mounts Ahead of Budget 2026
India's burgeoning cryptocurrency sector is intensifying its push for fundamental tax policy changes as the nation gears up for Budget 2026. Industry players are voicing strong objections to the existing tax framework, established in Budget 2022, arguing it actively impedes domestic growth and pushes traders toward offshore platforms.
Key Demands: TDS Reduction and Tax Review
Central to the industry's agenda is a significant reduction in the 1 percent Tax Deducted at Source (TDS) currently levied on every cryptocurrency transaction. This measure, industry leaders contend, effectively locks up traders' capital and dampens liquidity. They propose lowering the TDS rate to a more manageable 0.01 percent, a move they believe would strike a crucial balance between enabling transaction tracking and fostering a healthy domestic market. Nischal Shetty, Founder of WazirX, stated that the current 1% TDS, imposed under Section 194S of the Income Tax Act since July 1, 2022, has curtailed participation.
Furthermore, the flat 30 percent tax on virtual digital asset (VDA) gains, introduced in Budget 2022, is under scrutiny. This rate, akin to taxes on lotteries and gambling winnings, applies irrespective of the holding period. Experts argue this erodes net returns, particularly for long-term investors who are denied the benefits of lower long-term capital gains taxes available for other asset classes. SB Seker, Head of APAC at Binance, suggested a pragmatic framework focused on realized capital gains, with provisions for limited loss set-offs and a shift away from transaction-level levies towards corporate taxes on net revenue.
The Case for Loss Set-offs and Clarity
Beyond TDS and capital gains, the industry is strongly advocating for the ability to offset losses. Currently, losses from VDA trading cannot be adjusted against gains from any asset class, creating a perceived asymmetry. Allowing investors to offset crypto losses against other crypto gains, or even other asset classes, would ensure taxation is applied only to net profits, creating a fairer environment. Edul Patel, CEO of Mudrex, noted that the 1% TDS on VDA transactions has already pushed trading offshore.
Raj Karkara, COO of ZebPay, highlighted the critical need for regulatory clarity. While the government maintains it does not regulate crypto itself, taxation applies to all activities. Clearer guidelines on classification, treatment, and oversight are expected to boost investor confidence, enable responsible business planning, and encourage innovation within defined boundaries, moving India toward a 'license-and-supervise' model from a 'tax-and-deter' approach.