India has reaffirmed its decision to retain a 30% flat tax on cryptocurrency gains and a 1% Tax Deducted at Source on every trade, despite sustained criticism from investors and industry participants. The policy, introduced in February 2022, has been blamed for shrinking domestic trading volumes and driving capital to offshore platforms. Finance Minister Nirmala Sitharaman confirmed in the Budget 2026–27 presentation that the framework will remain unchanged. While authorities argue the regime strengthens compliance and regulatory oversight, market participants warn that high taxation and liquidity constraints may hinder the long-term competitiveness of India’s digital asset ecosystem.
Policy Continuity in Budget 2026–27
India’s government has opted for policy continuity in its approach to digital asset taxation. During the presentation of the Union Budget for 2026–27, Finance Minister Nirmala Sitharaman confirmed that the existing crypto tax framework will remain intact.
The regime, introduced in February 2022, imposes a flat 30% tax on gains arising from virtual digital asset transactions. In addition, a 1% TDS is levied on every trade, regardless of profitability. The structure does not permit investors to offset losses against gains, a provision that distinguishes it from traditional capital market taxation.
The government’s stance underscores its preference for regulatory caution over fiscal relaxation in the rapidly evolving crypto sector.
Investor Concerns and Market Impact
Since implementation, domestic investors and exchange operators have consistently urged authorities to reconsider the tax structure. Industry stakeholders argue that the 30% rate, combined with the inability to set off losses, has materially reduced trading activity within Indian exchanges.
The 1% TDS, applied to each transaction, has further affected liquidity by locking up capital with every trade. Market participants contend that the cumulative effect has driven substantial trading volume to offshore platforms, resulting in billions of rupees in lost domestic turnover.
Critics maintain that while taxation is necessary, the current framework may inadvertently disadvantage Indian platforms in a globally competitive environment.
Government’s Compliance-First Approach
Officials and policy observers indicate that the government’s primary objective is regulatory discipline rather than rapid sectoral expansion. According to market experts, the continuation of the existing regime reflects a deliberate strategy to prioritize transparency, reporting standards and anti-evasion measures.
Chartered accountant Sonu Jain of 9Point Capital noted that India’s immediate focus lies in strengthening enforcement mechanisms rather than revisiting headline tax rates. He emphasized that discussions among G20 member states regarding a standardized global framework for digital assets remain ongoing.
Similarly, Pranav Agarwal of Jetking Infotrain India suggested that maintaining the tax regime aligns with the government’s intent to ensure that digital asset markets operate within a structured and accountable environment.
Liquidity Constraints and Structural Challenges
The 1% TDS provision has emerged as one of the most debated elements of the policy. Applied to each transaction value rather than net gains, the deduction can significantly reduce active trading capital, particularly for high-frequency traders.
In volatile markets, where prices can fluctuate sharply within short periods, the inability to offset losses further compounds financial exposure. Investors argue that this structure limits risk management flexibility and discourages active participation.
From a broader economic standpoint, reduced domestic liquidity may slow innovation within India’s crypto ecosystem, potentially affecting startups, blockchain developers and related financial services.
International Context and Regulatory Alignment
India’s cautious approach mirrors global efforts to bring digital assets within formal regulatory frameworks. Policymakers have increasingly emphasized cross-border coordination to prevent regulatory arbitrage and financial misconduct.
Engagement at the G20 level suggests that India is positioning itself within a broader multilateral conversation about harmonized standards. Until such consensus emerges, the government appears inclined to maintain a stable, enforcement-driven domestic policy.
This strategy prioritizes systemic safeguards over immediate industry growth, reflecting concerns about market volatility, investor protection and financial integrity.
The Road Ahead for India’s Crypto Market
The decision to retain the 30% tax and 1% TDS signals that any substantial reform is unlikely in the near term. While the framework provides regulatory clarity, questions remain about its long-term sustainability in fostering a competitive domestic crypto marketplace.
For investors, the policy environment continues to demand careful capital allocation and compliance awareness. For exchanges and industry participants, operational adaptation may be essential to remain viable within the existing constraints.
As digital assets evolve and global regulatory coordination advances, India’s crypto taxation strategy will remain a critical determinant of whether the country emerges as a leading participant or a cautious observer in the digital finance revolution.
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