India’s crypto industry pushed for near-term tax relief in late January 2026, arguing that the 1% TDS and the flat 30% tax on Virtual Digital Assets (VDAs) have drained onshore liquidity and pushed trading offshore. Industry executives say the current tax design adds friction across trading and market-making, weakening domestic onboarding and product viability.
The industry is positioning the Union Budget as a practical reset opportunity for exchanges, wallets, and DeFi product teams while keeping traceability and compliance intact. The core argument is that usability and compliance can coexist, but only if transaction taxes stop throttling liquidity.
How the Current Rules Create Market Friction
Since the 2022 Budget, Section 115BBH and Section 194S have reshaped transaction economics for users and platforms. The 30% flat tax on gains disallows deductions and loss set-offs, increasing the effective tax burden on realized gains and complicating portfolio management.
The 1% TDS on transfers above statutory thresholds requires buyers to deduct and deposit tax on each applicable transaction, including barter swaps where cash must cover the levy. Product teams describe this as a recurring settlement and workflow problem that makes high-frequency activity and market-making uneconomic on domestic venues.
Industry participants cite capital flight as a measurable consequence of this friction, describing an exodus of volume that reduces onshore depth and widens spreads. One derivatives platform estimate placed offshore trading volume by Indian users at about ₹5 lakh crore between October 2024 and October 2025, which is presented as a concrete signal of onshore liquidity loss.
What the Industry Is Asking For
A key proposal is to reduce TDS while maintaining transaction traceability, with suggested rates ranging from 0.01% to 0.1% to lower per-transaction drag. The intended outcome is restoring active order-book participation without abandoning reporting visibility.
The industry also wants the 30% flat tax reworked to allow loss set-offs or to align crypto gains with standard income or capital-gains treatment. Supporters argue this would simplify rebalancing, reduce harmful accounting edge cases, and make tax reporting flows more coherent for wallets and platforms.
A further request is a clearer, rules-based supervisory model that replaces a primarily tax-driven deterrence posture. The stated goal is to let exchanges implement compliant KYC and AML flows with deterministic permission transparency while reducing the competitive imbalance with offshore venues.
Executives frame the requested changes as direct fixes to workflow breakdowns, including fewer cash shortfalls at settlement and clearer confirmation steps that reflect net tax impact. Sumit Gupta of CoinDCX said, “A lower TDS would preserve transaction traceability without crippling liquidity or discouraging active trading,” while Edul Patel of Mudrex suggested a 0.1% rate and enabling loss offsets.
For investors, product teams, and compliance functions, the proposals imply fewer edge cases in transaction signing and reduced need for workaround routing to offshore platforms. A rationalized structure is positioned as a way to reduce UX risk tied to cash shortfalls and regulatory arbitrage while making domestic venues more predictable for users and builders.
Investors, exchanges, and UX teams are now focused on the Union Budget on February 1, 2026 as the key decision point. The outcome will signal whether policymakers prioritize restoring onshore liquidity and simplifying operational flows or maintain a high-friction regime that industry claims has already pushed significant activity offshore.