India’s cryptocurrency market is holding its breath. After years of operating under a rigid and often criticized tax framework, investors, traders, and industry pioneers are pinning their hopes on Budget 2026 for a long-overdue course correction. The current system, cemented in the 2022 and 2025 budgets, imposes a steep 30% flat tax on all profits and a 1% Tax Deducted at Source (TDS) on every transaction—a combination many argue is stifling innovation and pushing activity offshore [[1]].
But with a booming market and a recent landmark court judgment, the pressure is mounting on the government to provide clarity and fairness. So, what exactly is broken, and what can we realistically expect from the upcoming budget?
Table of Contents
- The Current State of Crypto Tax in India
- Why the 30% Flat Tax is a Major Pain Point
- The Game-Changer: Crypto as “Property”
- Budget 2026 Expectations from the Industry
- What are the Possible Scenarios for Budget 2026?
- Conclusion: Will Clarity Finally Arrive?
- Sources
The Current State of Crypto Tax in India
The foundation of India’s crypto tax structure was laid in the Union Budget 2022, which introduced Section 115BBH of the Income Tax Act. This section created a new category called Virtual Digital Assets (VDAs) and slapped a flat 30% tax on any income from their transfer, with no deductions allowed except for the cost of acquisition [[9]]. To top it off, a 1% TDS was added on every sale or transfer of a VDA [[1]].
Budget 2025 maintained this status quo, offering no relief or refinement [[1]]. While this brought crypto into the formal tax net, it also created significant friction for users. The most glaring issue? The absolute prohibition on setting off losses.
Why the 30% Flat Tax is a Major Pain Point
Imagine you make a profit on one trade but incur a loss on another. In virtually every other asset class—be it stocks or real estate—you can offset that loss against your profit, paying tax only on the net gain. Not so with crypto in India.
Under the current rules, losses from crypto transactions cannot be set off against any other income, including other crypto profits, and cannot be carried forward to future years [[11], [15]]. This means you could be in a net loss position for the year but still owe a massive tax bill on your individual winning trades. It’s a system that feels fundamentally unfair and ignores the volatile nature of the market.
This rigidity has led to widespread frustration. Industry bodies like the Bharat Web3 Association (BWA) have been vocal, with Chairman Dilip Chenoy highlighting the lack of loss set-off provisions as a critical flaw that needs addressing in Budget 2026 [[16]].
The Game-Changer: Crypto as “Property”
In a significant development that could reshape the entire conversation, the Madras High Court ruled in late 2025 that cryptocurrency legally constitutes “property” under Indian law [[23], [26]]. This landmark judgment is a major win for investor protection and provides a clear legal classification that was previously missing.
While the Income Tax Act uses the term VDA, this judicial pronouncement adds a powerful layer of context. If crypto is property, shouldn’t its taxation align more closely with other forms of property? This ruling gives the government a strong legal and logical basis to revisit the current tax framework and move towards a more rational system that allows for loss adjustments and potentially even indexation benefits.
Budget 2026 Expectations from the Industry
The crypto industry’s wishlist for Budget 2026 is clear and consistent:
- Allow Loss Set-Off and Carry Forward: This is the single biggest demand. Permitting investors to offset their crypto losses against their gains would bring the regime in line with global best practices and basic principles of fairness [[31]].
- Rationalize the 1% TDS: Many experts, including CoinDCX co-founder Sumit Gupta, have suggested reducing the TDS from 1% to as low as 0.01%. They argue the current rate is excessive for a digital asset and acts as a barrier to entry for small investors, while also encouraging trading on unregulated offshore exchanges [[35]].
- Reconsider the 30% Flat Rate: While a complete overhaul is less likely, there are calls to at least allow the 30% tax to be applied only on net profits after accounting for losses, or to integrate it into the existing capital gains framework based on holding periods [[33]].
What are the Possible Scenarios for Budget 2026?
So, what’s the most likely outcome? There are two main paths the government could take:
- Scenario 1: Incremental Clarity and Minor Tweaks. The government might choose to maintain the 30% rate but provide official clarification on the treatment of various DeFi activities, staking rewards, and NFTs. They could also slightly reduce the TDS threshold or offer some administrative relief. This would be a safe but disappointing move for the industry.
- Scenario 2: A Bold, Growth-Oriented Shift. Capitalizing on the Madras High Court’s “property” ruling, the Finance Minister could announce a major reform: allowing loss set-off against VDA income. This single change would signal a mature, investor-friendly approach and could catalyze a new wave of domestic investment in the sector. Given that the value of crypto transactions in India exceeded ₹51,000 crore in 2024-25, the potential tax base is too large to ignore [[38]].
Most experts lean towards Scenario 1, fearing the government’s historically cautious stance. However, the growing economic significance of the sector and the clear legal precedent make Scenario 2 a tantalizing possibility.
Conclusion: Will Clarity Finally Arrive?
Budget 2026 stands at a crossroads for India’s digital economy. The current crypto tax regime, while ensuring compliance, has arguably hampered the growth of a legitimate and innovative industry. The demand for clarity on loss set-offs and a more nuanced approach to VDAs is not just a plea from a niche group; it’s a call for a modern, equitable, and economically sensible policy.
The Madras High Court has done its part by providing a clear legal identity for crypto as property. Now, it’s the Finance Ministry’s turn. Will they seize this opportunity to foster a thriving Web3 ecosystem in India, or will they stick to a rigid framework that pushes talent and capital elsewhere? The answer, expected on February 1st, will shape the future of finance in India for years to come.
Sources
- [[1]] Flitpay: Ultimate Guide to Crypto Taxation in India 2025
- [[11]] CoinSwitch: Crypto Tax Laws in India: A Complete Guide (2025)
- [[15]] Vidhi Sastras: Crypto Tax in India: 30% Tax, 1% TDS and Reporting Requirements Explained
- [[16]] Moneycontrol: Budget 2026-27: Four years on, crypto industry continues to push for tax rationalisation, loss set-off
- [[23]] The Economic Times: ‘Crypto is now property’ in India: What that really means
- [[26]] NDTV: Madras High Court Recognises Cryptocurrency As Property Under Indian Law
- [[31]] The Hindu: Budget 2026 Expectations: India’s Crypto industry urges govt to level the playing field on how cryptos are taxed
- [[35]] CNBC TV18: Budget 2026: Experts call for fair tax measures and TDS rationalisation on crypto, among other things
- [[38]] Times of India: Budget 2026 expectations: India’s cryptocurrency tax framework deserves a timely recalibration