Synopsis: India’s Budget 2026 keeps 30% crypto tax and 1% TDS unchanged while introducing new penalties up to ₹50,000 for reporting failures and non-compliance.
India’s Union Budget for 2026-27, presented on February 1 by Finance Minister Nirmala Sitharaman, has disappointed crypto industry stakeholders. The government retained the 30 percent tax on crypto gains and 1 percent tax deducted at source (TDS). Moreover, it introduced strict penalties for non-compliance in reporting crypto transactions. The move signals a focus on enforcement rather than relief, tightening the screws on exchanges and intermediaries.
Existing Tax Framework Remains Same
The budget leaves India’s crypto tax structure unchanged, maintaining the flat 30 percent levy on gains from virtual digital assets. This tax, introduced in the Finance Act 2022, applies to all transfers of crypto assets. Notably, taxpayers cannot set off losses against gains or claim deductions.
The 1 percent TDS on crypto transactions also continues without modification. This TDS applies when transaction value exceeds ₹50,000 in a financial year. However, transactions conducted entirely in kind, without cash consideration, remain exempt. Crypto exchanges must deduct and remit TDS quarterly, and traders can later claim credit against their tax liability.
Industry groups had lobbied for reductions in both tax rates and TDS thresholds. They argued that the current framework dampens liquidity and drives traders to offshore platforms. Ashish Singhal, co-founder of CoinSwitch, stated that taxing transactions without recognizing losses creates friction rather than fairness.
He suggested reducing TDS from 1 percent to 0.01 percent to improve liquidity. Additionally, raising the TDS threshold to ₹5 lakh would protect small investors from disproportionate impact. The budget’s silence on these requests disappointed advocates hoping for regulatory relief.
What Is New?
The Finance Bill 2026 introduces penalties for entities failing to comply with crypto reporting obligations under Section 509. Reporting entities include crypto exchanges, wallet providers, and intermediaries. These entities must furnish annual statements detailing transaction nature, parties involved, and values.
Failure to submit these statements by the due date attracts a penalty of ₹200 per day. This daily fine continues until the entity complies. Separately, providing inaccurate information or failing to correct errors triggers a flat penalty of ₹50,000 (approximately $545).
These provisions take effect from April 1, 2026, applying to transactions in the financial year 2025-26 onward. The government aims to strengthen compliance and discourage incomplete or inaccurate reporting.
Finance Minister Sitharaman emphasized creating a deterrence for non-furnishing of statements or furnishing inaccurate information. The penalties align with the OECD’s crypto-asset reporting framework, bringing India closer to global standards. However, market participants warn that expanded compliance obligations, without tax relief, may further burden domestic platforms.
Also Read: ₹51,252 Crore Shifted Overseas: Are Taxes Killing India’s Crypto Market?
Industry Reaction and Market Impact
Crypto industry players expressed mixed reactions to the budget proposals. Some welcomed the clarity on reporting standards, noting it reinforces accountability. Raj Karkara, COO of ZebPay, said well-defined measures for non-compliance strengthen trust and support long-term growth.
However, others highlighted persistent challenges. The unchanged tax structure has reportedly contributed to a 90 percent drop in trading volumes on Indian exchanges since 2022. Capital continues flowing to unregulated foreign platforms, undermining domestic market development.
Experts argue that the lack of reform leaves existing frictions in place. The 30 percent tax applies without deductions, making crypto less attractive compared to other asset classes. The 1 percent TDS ties up traders’ capital, reducing liquidity.
As a result, the budget may accelerate offshore migration despite improved reporting standards. Industry stakeholders continue advocating for rate reductions and alignment with capital gains treatment for traditional assets. On the other hand, the government prioritizes transparency and enforcement over tax concessions.
Broader Compliance
Beyond reporting penalties, the Finance Bill amends general penalty provisions for TDS non-payment. These apply to all tax deducted at source, including crypto transactions. Failure to deduct or remit TDS now attracts tiered punishments based on unpaid amounts.
For amounts up to ₹10 lakh, only a discretionary fine applies. Unpaid amounts exceeding ₹10 lakh but under ₹50 lakh attract simple imprisonment up to six months, or fine, or both. Amounts above ₹50 lakh can result in simple imprisonment up to two years. These provisions take effect from March 1, 2026, for certain sections and April 1, 2026, for others.
The government replaces rigorous imprisonment with simple imprisonment to make penalties more proportionate. This rationalization reduces harshness for smaller defaults while maintaining deterrence for large-scale evasion.
Importantly, no penalty applies if TDS is paid before filing the quarterly statement. For crypto platforms, this means timely remittance is critical to avoid criminal liability. The changes reflect a broader strategy to improve tax compliance across high-risk financial transactions. Platforms must now invest in robust systems for automated reporting and TDS management to avoid accumulating fines or facing prosecution.
Written By Fazal Ul Vahab C H
