Key Highlights
- India’s current crypto tax regime pushed over 90% of trading to offshore platforms, weakening oversight and tax collection.
- Industry leaders argue that Budget 2026 must cut TDS, rationalize tax rates, and allow loss offsets to restore compliance.
- With India leading global crypto adoption, policy reform could decide whether Web3 innovation stays domestic or moves abroad.
Every Union Budget creates winners and losers. But for crypto in India, Budget 2026 could do something bigger; it could decide whether the industry operates inside the country or permanently outside it.
Four years after India introduced one of the world’s strictest crypto tax regimes, the results are now impossible to ignore. Instead of improving oversight or boosting revenue, the rules have quietly pushed Indian traders, startups, and capital onto offshore platforms, many of which operate beyond the reach of Indian regulators.
In a recent Moneycontrol column, Sumit Gupta, CEO and Co-Founder of CoinDCX, laid this reality bare. His argument is not ideological. It is practical: the policy didn’t fail because Indians don’t want regulation; it failed because it made compliance economically irrational.
When taxes drove users away instead of bringing them in
In 2022, the government introduced a 30% flat tax on crypto gains and a 1% TDS on every transaction, regardless of profit or loss. The intent was to track activity and formalise the market.
What followed was an immediate and predictable reaction.
As soon as the rules were announced—and even more so once they came into force—Indian traders began shifting to offshore exchanges. Between 2022 and late 2024, Indians traded more than ₹5.8 lakh crore on foreign platforms, accounting for over 90% of crypto trading by Indian users.
The government, meanwhile, collected just ₹258 crore (approx. $31 million) in TDS. Estimates suggest ₹2,500–5,000 crore (approx. $300–600 million) in tax revenue has already slipped through the cracks. A Delhi-based think tank puts total losses at ₹6,000 crore (approx. $720 million) so far, with another ₹17,700 crore (approx. $2.12 billion) over the next five years if nothing changes.
The message from the market was clear: users didn’t stop trading—they simply stopped trading where India could see them.
The bigger problem: Crypto didn’t just move offshore, it went dark
This shift wasn’t only about saving on taxes. It also created a much deeper problem.
Roughly five million Indian users are now estimated to be active on offshore platforms, many of which do not follow Indian KYC norms or report to FIU-India. Transactions increasingly happen through peer-to-peer routes, informal networks, and loosely monitored channels.
Recent reports from across the country show how some operators deliberately stay outside India’s regulatory net. They lure users with unrealistic returns, expose them to scams, or quietly plug them into money-laundering networks.
As Gupta warns, this has led to the creation of a parallel financial ecosystem—one that undermines tax compliance, weakens AML enforcement, and poses real risks to investor safety and national security.
Ironically, in trying to control crypto too tightly, India may have lost control altogether.
A strange time to push an industry away
All of this is happening at a moment when India should be doubling down.
The country has ranked first in grassroots crypto adoption for three years in a row. It is home to over 1,000 Web3 startups, around 75,000 blockchain professionals, and nearly 12% of the world’s crypto developers.
By some estimates, blockchain could add $1.1 trillion to India’s economy by 2032. And yet, founders are leaving.
Dubai offers zero personal income tax on crypto. Singapore provides regulatory clarity. The US is openly integrating crypto into its financial strategy, even setting up a strategic Bitcoin reserve. Indian startups, meanwhile, are relocating not because they want to avoid rules, but because staying has become financially unviable.
India risks losing not just capital, but influence in a technology that will shape global finance.
What budget 2026 can still fix
Gupta’s suggestions are not about deregulation. They are about course correction.
The first step is enforcing TDS uniformly across all exchanges, especially offshore platforms catering to Indian users. Today, the competitive field is skewed because Indian exchanges follow the rules while others don’t.
At the same time, reducing TDS from 1% to 0.01% would keep transaction tracking intact without draining liquidity. The original monitoring objective remains, but the incentive to flee disappears.
The second issue is the 30% flat tax. Treating crypto differently from every other asset class makes little sense. A college student and a high-income professional should not face the same tax rate. Aligning crypto gains with existing income tax slabs would restore basic fairness and encourage honest reporting.
Then there’s the question of losses. Web3 businesses—like any others—have good years and bad ones. Disallowing loss offsets and standard deductions breaks basic accounting logic and discourages domestic innovation.
What many retail users are quietly asking
One concern often raised is whether easing taxes will lead to reckless speculation.
But there’s another way to look at it: regulated platforms are safer than unregulated ones. When users trade on FIU-registered exchanges, authorities can see transaction flows, flag suspicious activity, and protect investors. When trading happens offshore, India sees nothing.
Lower friction doesn’t mean lower control. In practice, it often means better visibility.
Regulation works best when people don’t run from it
The Indian crypto industry has already shown it can comply with PMLA norms, KYC rules, and reporting obligations. The issue is not resistance to regulation—it is resistance to a system that punishes compliance and rewards evasion.
Right now, India has the worst of both worlds: limited tax collection and almost no visibility into actual trading behaviour.
Budget 2026 offers a chance to change that.
As the Finance Ministry begins pre-Budget consultations, voices from the sector—including Gupta’s, are calling for engagement, not confrontation. The message is simple: crypto is not asking for a free pass. It is asking for rules that work.
Whether India listens may decide if its crypto future is built at home or written elsewhere.
Also Read: India’s IT Dept. Flags Crypto Risks, Users Face Higher Scrutiny
