Crypto market expects regulatory clarity and tax rationalisation from Budget 2026

The Indian cryptocurrency industry's fervent plea for regulatory clarity and tax rationalisation ahead of Budget 2026 marks a pivotal moment in India's journey with digital assets. This ongoing dialogue underscores the complex tightrope walk between fostering innovation in the burgeoning Web3 ecosystem and safeguarding financial stability and investor interests. Understanding this dynamic requires delving into its background, key players, and broader implications.

Historically, India's stance on cryptocurrencies has been characterized by caution and, at times, outright apprehension. The journey began with the Reserve Bank of India (RBI) issuing circulars against crypto in 2013 and 2017, culminating in a blanket ban on regulated entities dealing with crypto in April 2018. This restrictive measure was, however, overturned by the Supreme Court in March 2020 in the landmark case of *Internet and Mobile Association of India v. Reserve Bank of India*, which cited the RBI's inability to demonstrate actual harm caused by crypto activities. This judgment provided a temporary reprieve, but regulatory uncertainty persisted.

In the absence of a dedicated legal framework, the Indian government introduced a taxation regime for Virtual Digital Assets (VDAs) in the Union Budget 2022, effective from April 1, 2022, through the Finance Act, 2022. This included a flat 30% tax on income from VDA transfers (Section 115BBH of the Income Tax Act, 1961) and a 1% Tax Deducted at Source (TDS) on VDA transactions above a certain threshold (Section 194S of the Income Tax Act, 1961). While these provisions implicitly acknowledged crypto as an asset for taxation purposes, they did not grant it legal tender status. The government's rationale was primarily to generate revenue from a rapidly growing sector, discourage speculative trading, and bring some semblance of oversight.

Currently, the industry is specifically seeking relief from these two major tax burdens: the 1% TDS and the 30% flat tax. Industry bodies argue that the 1% TDS significantly reduces liquidity, especially for high-frequency traders, making the Indian market unattractive compared to global platforms. The 30% flat tax, levied without allowing for offsetting losses from other VDA transactions (except in specific cases outlined in the Finance Act), is seen as punitive and stifling to growth. The overarching goals of the crypto industry are to boost market liquidity, enhance compliance by keeping transactions onshore, build investor confidence, and ultimately foster the growth of India's domestic Web3 ecosystem, which encompasses blockchain, NFTs, DeFi, and the metaverse.

Key stakeholders in this debate include the **Government of India**, particularly the Ministry of Finance and the RBI, who are responsible for fiscal policy, financial stability, and monetary policy. The **crypto industry**, comprising exchanges (e.g., WazirX, CoinDCX), Web3 startups, and industry associations like the Blockchain and Crypto Assets Council (BACC) under IAMAI, are the primary advocates for reform. **Investors and traders** are directly impacted by these policies, with many reportedly migrating to international platforms or reducing their trading activity due to high taxes. Globally, **international bodies** such as the G20, IMF, and Financial Stability Board (FSB) are also significant, as India's G20 presidency in 2023 saw a strong push for a coordinated global regulatory framework for crypto assets, influencing domestic policy discussions.

This issue matters immensely for India. Economically, a rationalized tax and clear regulatory framework could unlock significant potential for innovation, job creation in the Web3 space, and attract foreign investment. Conversely, overly stringent policies risk capital flight and hindering India's ambition to be a global technology hub. From a governance perspective, the lack of a comprehensive legal framework creates ambiguity, making it challenging for law enforcement to tackle illicit activities like money laundering and terror financing. It is noteworthy that crypto entities have been brought under the purview of the Prevention of Money Laundering Act (PMLA), 2002, since March 2023, highlighting government concerns regarding Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT).

Constitutionally, the power to levy taxes on income (other than agricultural income) rests with the Union Parliament under Entry 82 of the Union List in the Seventh Schedule. The existing crypto taxes derive their authority from this provision, specifically through the Finance Act, 2022. The broader regulatory framework might also touch upon entries related to banking (Entry 45), public debt (Entry 35), and stock exchanges (Entry 48). The debate also intersects with fundamental rights, particularly the right to carry on any occupation, trade or business (Article 19(1)(g)), balanced against reasonable restrictions in the public interest.

The future implications are substantial. Budget 2026 could bring a partial rationalization, a complete overhaul, or maintain the status quo. A more favorable tax regime could significantly boost investor confidence and encourage domestic participation, potentially positioning India as a leader in the global Web3 landscape. However, the government's cautious approach is likely to continue, balancing innovation with the imperative of financial stability and consumer protection. The ultimate goal for India should be a comprehensive, well-thought-out legal framework for VDAs, moving beyond mere taxation to address classification, consumer protection, market integrity, and international cooperation, aligning with the global consensus being forged by bodies like the G20.