India Faces Pressure to Rethink Crypto Taxes Ahead of Union Budget as Trading Shifts Offshore

As India prepares for the upcoming annual Union Budget, the domestic cryptocurrency industry is ramping up pressure on the Ministry of Finance to urgently reconsider the nation’s highly stringent digital asset taxation regime. Introduced in 2022, the current framework imposes a flat 30% tax on virtual digital asset gains, a 1% Tax Deducted at Source (TDS), and, controversially, prohibits investors from setting off losses against profits.

This punitive structure has had a devastating impact on the domestic market. Reports from major Indian crypto exchanges indicate a massive flight of capital, with trading volumes plummeting by over 90% since the taxes were implemented. Instead of ceasing activity, users are increasingly migrating to large offshore exchanges (such as Binance and Bybit) or relying on peer-to-peer (P2P) transactions, leading to significant revenue leakage for the government and pushing consumer activity outside the regulatory perimeter.

Industry bodies, including the Blockchain and Crypto Assets Council (BACC), are actively lobbying for key modifications. The central demand is the reduction of the flat 30% tax rate to a bracket comparable to existing financial assets, such as 15% for short-term capital gains, alongside allowing the set-off of losses, a standard practice in traditional finance. Additionally, the burdensome 1% TDS is being scrutinized, with calls to either abolish it or reduce it substantially (e.g., to 0.01%) to prevent deterring high-frequency traders.

The industry argues that a failure to rationalize the tax laws in the forthcoming budget will not only continue to stifle domestic innovation in the Web3 space but will also prevent the government from capitalizing on the legitimate tax revenue generated by millions of Indian crypto investors. The budget session is viewed as a critical opportunity for policymakers to strike a balance between regulatory oversight and fostering a viable domestic digital asset ecosystem.

Source: India Faces Pressure to Rethink Crypto Taxes Ahead of Union Budget as Trading Shifts Offshore