Indian Crypto Exchanges Demand Tax Reforms Before 2026 Budget

India's crypto industry is pushing back. With the 2026 Union Budget approaching, major exchanges are calling for urgent changes to a tax framework they say is crushing domestic trading and driving volume offshore.

The numbers tell the story. A flat 30% tax on all crypto gains. A 1% TDS deducted on every single transaction. No ability to offset losses against profits. These rules, introduced in 2022, have created what industry leaders describe as an impossible environment for compliant traders.

WazirX founder Nischal Shetty sees the upcoming budget as a critical inflection point: "India has a chance to refine its framework to better support compliance while encouraging growth."

What Are India's Current Crypto Tax Rules?

India's cryptocurrency taxation stands among the harshest globally. The framework treats digital assets as a revenue source first, an innovation opportunity second.

Tax Component	Current Rule	Market Impact
Capital Gains Tax	Flat 30% on all profits	No distinction between short and long-term holdings
TDS Rate	1% on every transaction	Drains liquidity regardless of profit or loss
Loss Offset	Not permitted	Traders cannot reduce tax burden through strategic losses

The 1% TDS hits hardest. Unlike traditional capital gains taxes that apply to profits, this levy triggers on every trade. A day trader making 100 transactions faces 100 separate deductions, whether they end the day up or down.

ZebPay COO Raj Karkara put it bluntly: "Rationalizing the 1% TDS can significantly increase onshore participation."

Why Are Indian Exchanges Pushing for Reform Now?

Timing matters. The Union Budget announcement in February 2026 represents the next realistic window for policy changes. Exchange executives are making their case early and loudly.

The argument centers on capital flight. When domestic trading becomes too expensive, volume migrates to offshore platforms operating beyond Indian regulatory reach. Tax authorities struggle to track these transactions, creating a paradox where strict rules generate less compliance and less revenue.

Binance APAC's SB Seker offered a global perspective: "Focusing on capital gains taxation while limiting loss offsets and removing excessive transaction levies would signal a more investor-friendly approach."

The subtext is clear. Other major economies are building progressive crypto frameworks. India risks falling behind while simultaneously losing tax revenue to offshore competition.

How Does India's Crypto Tax Compare Globally?

India's 30% flat rate sits at the extreme end of the global spectrum. Most developed markets apply graduated rates or treat crypto similarly to traditional investments.

The loss offset prohibition creates additional friction. In most jurisdictions, traders can balance winning and losing positions for tax purposes. India treats each crypto asset in isolation, amplifying effective tax rates for active traders.

This structural disadvantage pushes sophisticated traders toward platforms in more favorable jurisdictions. The 1% TDS compounds the problem by making even break-even trading unprofitable after tax.

What Reforms Are Exchanges Proposing?

Industry proposals focus on three core changes.

Reduce or eliminate the 1% TDS. This transaction-level tax creates the most immediate liquidity drain. Exchanges argue it should apply only to withdrawals or be removed entirely.

Allow loss offsets within crypto trading. Treating digital assets like traditional securities would let traders balance profitable and unprofitable positions. This aligns with global norms and encourages strategic compliance.

Review the flat 30% rate. While not the primary focus, exchanges suggest graduated rates based on holding periods could incentivize longer-term investment over speculative trading.

Shetty specifically highlighted the need for "reduced transaction-based TDS and reconsideration of loss set-off rules to restore market liquidity."

Is India Increasing Crypto Enforcement Despite Tax Concerns?

Regulatory pressure is intensifying from multiple directions. The Financial Intelligence Unit has mandated stricter KYC requirements including live selfie verification, geolocation tracking, and mandatory bank account linking.

This creates an interesting tension. Authorities want tighter oversight and compliance while exchanges argue current tax structures discourage the very compliance regulators seek.

Tax authorities acknowledge challenges in monitoring offshore exchanges, private wallets, and DeFi protocols. This enforcement gap strengthens the industry argument that reasonable domestic taxation would bring more activity onshore where it can be properly tracked.

What Happens If India Doesn't Reform Crypto Taxes?

The status quo carries real costs. Domestic exchanges report declining volumes as traders migrate to offshore alternatives. Tax collection from crypto likely falls short of projections as compliant traders reduce activity.

Meanwhile, India's position in the global digital asset race weakens. Countries building clearer, more balanced frameworks attract talent, capital, and innovation that might otherwise flow to Indian markets.

The 2026 budget represents a policy crossroads. Reform could unlock economic potential and improve actual compliance. Maintaining current structures risks accelerating the offshore migration that already undermines both revenue and regulatory goals.

India's crypto sector stands at a defining moment. The 2026 Union Budget offers a genuine opportunity to recalibrate policies that industry leaders argue have backfired, pushing activity offshore rather than generating sustainable tax revenue.

The core tension remains unresolved. Authorities want control and compliance. Exchanges want workable economics. Finding middle ground requires acknowledging that excessive taxation can undermine the very compliance it seeks to enforce.

With WazirX, ZebPay, and global players like Binance all pushing for change, the pressure on policymakers is mounting. Whether February brings meaningful reform or continued standoff will shape India's trajectory in the global digital asset race for years to come.