Key Takeaways:

• India’s Income Tax Department has flagged crypto as high-risk due to tracking and tax challenges.
• The 30% tax and 1% TDS remain unchanged, with limited banking access.
• The industry is pushing for tax relief in Budget 2026, as India favors a central bank digital currency.

As India prepares its Union Budget 2026–27, the country’s financial authorities are signaling an increasingly cautious stance on cryptocurrencies or virtual digital assets (VDAs). India’s Income Tax Department highlighted serious risks tied to VDAs during a 7 January 2026 presentation to the parliamentary standing committee on finance. 

Officials warned that these assets enable anonymous, borderless transfers without traditional banks, complicating tax collection and raising fears of misuse for money laundering. This stance echoes the Reserve Bank of India’s (RBI) long-voiced concerns.

Government concerns over crypto risks

Tax authorities pointed out how offshore exchanges and private digital wallets make it tough to track taxable income or identify asset owners. They noted that cross-border transactions often involve multiple countries, limiting India’s ability to verify flows or recover dues despite recent efforts to share data internationally. 

The department stressed that decentralized platforms add to these enforcement gaps, allowing funds to move outside regulated channels.

The RBI has repeatedly flagged similar issues, including the lack of real-world backing for these assets, which exposes investors to sharp price swings. Enforcement agencies also worry about potential links to illegal activities, like terror financing. The central bank emphasized in its Financial Stability Report for 2025 that even stablecoins, digital currencies pegged to traditional money, could disrupt financial stability and bypass controls on capital flows.

Current tax and banking framework

Since 1 July, 2022, India has imposed a flat 30% tax on profits from VDAs, treating them like lottery winnings under stricter rules. A 1% tax deducted at source (TDS) applies to every transaction, regardless of gain or loss, to help track users. However, losses from these assets cannot offset gains, even within the same category, creating what industry voices call an uneven system. 

Banking access remains limited, with many platforms operating overseas and unregistered with India’s Financial Intelligence Unit (FIU). The government has approved 49 exchanges in the 2024-2025 fiscal year to curb laundering risks, but scrutiny persists. In July 2025, authorities began using artificial intelligence and global data-sharing to spot discrepancies in tax filings, issuing notices for mismatches over ₹1 lakh ($1,200).

Industry push for budget reforms

Ahead of the budget, the Bharat Web3 Association met with finance ministry officials on 6 January 2026, urging cuts to the 1% TDS rate to 0.01% and permission to offset losses against gains. 

Nischal Shetty, founder of WazirX exchange, stated that the high 30% tax creates disparity compared to stocks, affecting user sentiment, also calling for a reduction of TDS rate to 0.01%. 

Edul Patel, CEO of Mudrex crypto exchange, highlighted that while TDS has helped in tracking market activity, it has also pushed people away from domestic crypto exchanges, asking for rationalization of 1% TDS. 

In an October 2025 statement, Union Minister Piyush Goyal explained that heavy taxes aim to protect users from unbacked assets. As discussions continue, the budget may address these calls, though India prioritizes its central bank digital currency over private cryptos.