The Indian government’s 2026-27 Union Budget has firmly retained the existing 30% tax on profits from cryptocurrency transactions and a 1% tax deducted at source (TDS) on trades. This decision, made public on February 2, 2026, has generated considerable discussion among industry stakeholders, especially in light of the new compliance measures set to take effect on April 1, 2026.
Despite ongoing lobbying from crypto industry participants hoping for a decrease in these significant tax burdens, the Finance Bill 2026 has not amended the current taxation structure. As a result, the unchanged tax framework continues to impact local trading volumes adversely, leaving many exchanges and market participants calling for immediate reform.
Ashish Singhal, co-founder of CoinSwitch, highlighted the challenges posed by high taxation, stating that the current environment discourages retail investors. He suggested that reducing the TDS rate on virtual digital assets (VDAs) from 1% to 0.01% could potentially enhance liquidity and make compliance simpler, ultimately benefiting market participants.
As part of the new compliance measures, which fall under amendments to Section 446 of the Income-tax Act, all entities reporting crypto transactions will be required to provide detailed statements to the tax authorities. Any delays in filing will incur a daily penalty of ₹200 (approximately $2.20), while inaccuracies in reporting, if not rectified after being flagged, could result in a flat fine of ₹50,000 (around $545). These measures aim to bolster transparency and ensure accurate reporting amid growing scrutiny of the digital asset sector.
However, the industry remains concerned about the lack of reform regarding the tax structure. Many participants have pointed out that the existing policy prohibits loss deductions, which disproportionately impacts small and retail investors. The unchanged TDS rate, a point of contention among experts, may further hamper market liquidity and lead users towards offshore platforms that offer more favorable trading conditions.
Some experts have suggested raising the TDS threshold from ₹10,000 to ₹500,000 to better protect small investors from the overwhelming financial impacts of these taxes. Singhal emphasized this point, asserting that such a change would provide crucial support for retail traders facing an already challenging landscape.
While the government insists that these changes are designed primarily to improve compliance rather than enhance tax revenue, the introduction of penalties signals a shift towards stricter enforcement. As outlined in the explanatory memorandum accompanying the Finance Bill, the government aims to improve the monitoring of crypto activities and ensure the traceability of funds in digital markets.
In conclusion, while the Indian government has opted not to revise the existing tax rates, the new compliance regulations and penalties have raised the stakes for crypto exchanges and reporting platforms. As the digital asset market continues to evolve, industry stakeholders will be watching closely to see how these changes influence trading behavior and compliance requirements in the coming months.
