Budget 2026: Will India's Crypto Sector Finally Get Regulatory Clarity?
The Halwa ceremony has concluded, marking the final stage of preparation for India's Union Budget 2026-2027. All attention now focuses on Finance Minister Nirmala Sitharaman's red bahikhata and what it holds for various economic sectors. Among the most watchful observers are participants in India's cryptocurrency market, who stand at a critical juncture seeking regulatory clarity and tax reforms.
India's Dominant Position in Global Crypto Adoption
India has emerged as the world's largest cryptocurrency market, valued at an impressive $338 billion, according to Chainanalysis data. This remarkable growth stems from multiple factors including widespread grassroots adoption, a robust digital payments ecosystem, and seamless fintech infrastructure like UPI and eRupi. The country's large diaspora relying on remittances and young adults using crypto trading as supplementary income have further fueled this expansion.
Between July 2024 and June 2025, on-chain value received in India surged by 99% compared to the previous year. India now leads the region in on-chain transaction volume and secured top position across all sub-indices in the 2025 Global Crypto Adoption Index. This explosive growth has created an urgent need for a clear regulatory framework to govern crypto trading activities.
The Evolution of Crypto Taxation in India
The formal recognition of virtual digital assets in India's tax system began with Union Budget 2022-23, marking the first explicit acknowledgment of these assets. The government noted a "phenomenal increase" in crypto transaction volume and frequency, introducing a dedicated tax regime featuring a flat 30% tax on income from virtual digital asset transfers.
Finance Minister Nirmala Sitharaman stated during her 2022-23 Budget speech: "No deduction in respect of any expenditure or allowance shall be allowed while computing such income except cost of acquisition. Further, loss from transfer of virtual digital asset cannot be set off against any other income." The government also implemented a 1% Tax Deducted at Source (TDS) on payments related to virtual digital asset transfers above specified thresholds, with gifts of such assets taxed in recipients' hands.
Budget 2025: Tightening the Regulatory Framework
Last year's Budget introduced significant measures that expanded the government's monitoring capabilities over crypto activities. While maintaining the 30% flat tax on crypto gains and 1% TDS, the Finance Bill established mechanisms requiring mandatory reporting of crypto assets effective from April 1, 2026.
The introduction of Section 285BAA brought crypto exchanges, wallet providers, and intermediaries under a mandatory reporting framework similar to traditional financial institutions. These entities must now submit periodic statements detailing user activity and transaction values to the Income Tax Department.
The government also expanded the definition of Virtual Digital Assets under Section 2(47A), ensuring that assets based on cryptographically secured distributed ledger technology fall within the tax net. This change future-proofed the law against emerging technologies like decentralized finance instruments, specialized NFTs, and newer token formats.
Perhaps most significantly, Budget 2025 included cryptocurrencies within search and seizure provisions. From February 1, 2025, undisclosed crypto holdings detected during tax searches face an effective 60% tax rate, including surcharge and penalty, placing them on par with unexplained cash, bullion, or jewelry.
Expert Expectations for Budget 2026
As Finance Minister Nirmala Sitharaman prepares to present her ninth consecutive Budget on February 1, tax experts and industry stakeholders have outlined their expectations for the cryptocurrency sector.
Surabhi Marwah, Tax Partner at EY India, emphasized that Budget 2026 presents an opportunity to bring much-needed clarity to VDA taxation, particularly regarding loss treatment, cross-category transactions, and compliance processes. "Such guidance would enhance predictability for taxpayers while supporting market development and compliance," she noted, citing global practices where countries like the US and UK treat cryptocurrencies within capital gains frameworks.
Ravi Jain, Partner at Vialto Partners, highlighted unresolved grey areas in the current framework. "The absence of clear and nuanced tax rules on crypto assets is a growing concern for investors, exchanges, and tax administrators," he stated, pointing to issues like asset classification, loss treatment, and cost-basis calculation. Jain advocates shifting from a "deterrence-based approach" to a "clarity-driven tax framework" with clear definitions and capital-gains-aligned treatment.
Radhika Viswanathan, Executive Director at Deloitte India, observed that while India ranks among world leaders in crypto adoption, the sector needs regulatory clarity and tax reforms to regain momentum. Industry stakeholders seek a structured regulatory roadmap and review of 2022 tax measures, including potential reduction in TDS to 0.01% and reassessment of the 30% gains tax.
Parizad Sirwalla, Partner at KPMG India, stressed the need for clarity on computing cryptocurrency income and applicable tax rates. A framework classifying crypto income under appropriate heads like capital gains or income from other sources would provide greater certainty, she explained, with slab-rate taxation instead of the flat 30% rate being a key industry expectation.
Cautious Outlook for Tax Relief
Some experts offer more conservative perspectives regarding potential Budget 2026 changes. Tanu Gupta, Partner at Mainstay Tax Advisors LLP, believes cryptocurrencies will likely continue being taxed as virtual digital assets at aggressive rates, with little expectation of relaxation given the government's policy approach.
Richa Sawhney, Partner at Grant Thornton Bharat, noted the government's emphasis on global coordination for cryptocurrency regulation and taxation. While progress has occurred internationally, several concerns remain unresolved, suggesting that significant tax relief for cryptocurrencies may still be some distance away despite industry wishlists.
As India's cryptocurrency sector awaits Budget 2026, the tension between regulatory oversight and market development continues. With the country leading global adoption metrics but operating under a compliance-heavy tax regime, stakeholders hope for greater clarity that balances revenue protection with ecosystem growth.
