India Crypto Industry Pushes for Tax Relief Ahead of Budget 2026 (TDS, Rules, Clarity)

India’s cryptocurrency industry is once again intensifying its push for meaningful tax relief and regulatory clarity ahead of the 2026 Union Budget, with stakeholders urging the government to revisit controversial tax provisions and provide clearer rules for crypto businesses and investors. With digital assets attracting significant retail and institutional attention, the industry argues that a more supportive tax and regulatory framework could unlock innovation, attract investment, and strengthen India’s role in the burgeoning global blockchain economy.

As the Budget approaches, discussions around tax-deducted-at-source (TDS) rates, capital gains treatment, and overall policy clarity are gaining momentum, with industry bodies, founders, and advocacy groups presenting detailed proposals to policymakers.

The Current Tax Regime: Challenges and Criticisms

High TDS Rates and Capital Gains Taxes

Under the current tax regime established in recent years, cryptocurrency transactions in India are subject to a 30% tax on gains and a 1% TDS (Tax Deducted at Source) on transactions above a certain threshold. While the government initially introduced these measures to monitor and regulate the fast-evolving digital asset space, industry participants argue that these provisions are punitive and dampen trading activity and liquidity.

High TDS obligations can create cash-flow challenges for traders and investors, particularly in a market where frequent trades are common. Instead of relieving tax at the point of profit realization, the current system deducts a portion of the transaction value upfront, potentially locking up capital and discouraging trading behaviour.

Lack of Clear Classification and Regulatory Framework

Another pressing issue is the absence of clear classification for different types of digital assets under Indian law. Whether tokens should be treated as commodities, securities, or a distinct asset class has wide implications for tax treatment, investor protection, and platform authorization. The lack of comprehensive rules has led to confusion among exchanges, institutional participants, and compliance officers.

Critics also point to inconsistent guidance from financial regulators and unclear definitions around staking, decentralized finance (DeFi) income, and non-fungible tokens (NFTs), further complicating tax reporting and compliance requirements.

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Industry Demands Ahead of Budget 2026

Call for Lower TDS Thresholds and Rates

One of the key demands from the Indian crypto community is a reduction or restructuring of TDS on crypto transactions. Industry bodies argue that a high TDS rate stifles liquidity and harms smaller traders who may struggle with upfront tax withholdings.

Many stakeholders are advocating for:

• A higher threshold before TDS applies
• A lower rate that is consistent with other financial instruments
• Clarifications on exemptions for long-term investors or institutional market-makers

Reducing the burden of TDS could encourage higher participation in crypto markets, boost trading volumes, and enhance price discovery on local exchanges.

Clear Asset Classification and Regulatory Framework

Beyond tax rates, the industry is pushing for a comprehensive regulatory framework that clearly defines digital asset classes and the associated compliance requirements. Proposals include:

• Defining cryptocurrencies, tokens, and digital securities
• Establishing licensing standards for crypto exchanges and custodians
• Clarifying how DeFi and staking rewards are taxed

Industry leaders argue that such clarity would not only help investors but also attract foreign investment, as institutional capital often demands regulatory certainty before deploying funds.

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Government Response and Policymaker Signals

Signals from Finance Ministry and Tax Authorities

India’s finance ministry and tax authorities have acknowledged the rapid growth of the digital asset ecosystem, but they have also emphasized the need for safeguards against misuse, tax evasion, and financial instability. In prior years, policymakers have maintained that taxes like TDS help create transparency and enable better monitoring of transactions.

However, senior officials have also indicated a willingness to examine industry concerns and consider adjustments that balance monitoring with growth incentives. Budget 2026 presents an opportunity for recalibrating the fiscal approach in light of evolving market realities.

Comparisons with Global Tax Approaches

Proponents of reform often cite examples from other jurisdictions, where tax authorities have adopted more growth-oriented frameworks for digital assets. Countries in the Middle East, Europe, and parts of Asia have introduced nuanced tax regimes that differentiate between trading income, long-term capital gains, and utility tokens, offering a blend of investor protection and market friendliness.

India’s crypto advocates contend that similar models—tailored to local priorities—could spur innovation while maintaining adequate oversight.

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Potential Impacts of Tax Relief and Regulatory Clarity

Boost to Local Exchanges and Innovation

Lower TDS rates and clearer tax rules could provide a significant boost to Indian exchanges and blockchain startups. With more predictable tax treatment, crypto platforms could:

• Offer more competitive products
• Attract local and international liquidity
• Develop advanced financial instruments like ETFs or tokenized securities

For startups in Web3, DeFi, and NFT platforms, regulatory certainty could also unlock venture capital funding and partnerships with traditional financial institutions.

Increased Participation from Institutional Investors

Institutional participation in Indian crypto markets is currently limited by regulatory uncertainty and tax friction. Clearer rules and a supportive tax framework would reduce compliance risk and make it easier for asset managers, family offices, and pension funds to explore digital asset exposure.

Institutional inflows could further deepen market liquidity, reduce volatility, and integrate Indian markets more closely with global crypto infrastructure.

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Challenges and Risks to Reform

Balancing Growth with Oversight

While tax relief and clarity could stimulate growth, the government must also address concerns around money laundering, consumer protection, and market integrity. A balance is essential to ensure that tax incentives do not inadvertently encourage speculative excess or abuse by bad actors.

Regulators will need to coordinate across agencies—including the central bank, securities regulator, and tax authority—to build a cohesive framework.

International Coordination and Compliance

Crypto markets are inherently global, and India’s tax policies will need to align with international standards on anti-money laundering (AML), counter-terrorism financing (CTF), and tax reporting like the OECD’s Common Reporting Standard (CRS). Harmonizing domestic reforms with international obligations will be critical for legitimacy and cross-border cooperation.

Looking Ahead: What to Expect in Budget 2026

As the Indian government finalizes Budget 2026, the crypto industry will be watching closely for:

• Changes to TDS rates or structures
• Clear definitions of digital asset classes
• Guidance on taxation of DeFi, staking, and NFTs
• Frameworks for exchange licensing and compliance

While significant reform is not guaranteed, the growing maturity of the industry and the government’s interest in fostering innovation may lead to incremental but meaningful changes. If Budget 2026 includes concessions on TDS and provides clearer rules, it could mark a turning point in India’s approach to crypto regulation.

Conclusion

India’s crypto industry is mobilizing significant voices and data-driven proposals ahead of the 2026 budget, calling for tax relief and regulatory clarity. With high TDS rates and ambiguous classification posing challenges for traders and businesses alike, stakeholders hope that policymakers will chart a course that balances oversight with innovation. The outcome of Budget 2026 could have lasting implications for crypto adoption, investment flows, and India’s role in the global digital asset ecosystem.