Budget 2026: Data flags misalignment in India’s crypto tax rules, calls grow for reform

As India heads into the Union Budget 2026, the domestic cryptocurrency industry is stepping up its push for a more outcome-aligned tax regime, arguing that current rules prioritise compliance mechanics over economic reality. At the heart of the demand are three long-standing issues: rationalisation of the flat 30% capital gains tax, permission to offset losses, and a relook at the 1% tax deducted at source (TDS) on every crypto transaction.

These concerns are backed by fresh data from India’s Crypto Tax Story 2025, an annual report released by KoinX, a crypto taxation and portfolio-tracking platform. Drawing on anonymised transaction data from nearly 7 lakh Indian users for FY 2024–25, the report offers one of the clearest pictures yet of how India’s crypto tax framework plays out in practice.

The report acknowledges that the 1% TDS has improved transaction-level reporting and visibility for tax authorities. However, it flags a significant unintended consequence: capital lock-in. Since TDS is deducted on every transaction, regardless of whether it results in a gain or a loss, it functions more as a volume-based compliance tool than a profit-linked tax. This has made refunds routine rather than exceptional.

In FY25, total TDS collected across the crypto ecosystem stood at ₹511.83 crore, of which KoinX users accounted for ₹130.16 crore, or 25.43%. Yet their actual tax liability was only ₹91.64 crore, leaving an estimated ₹38.52 crore as excess TDS to be refunded. Over 30% of users saw TDS deductions exceed their final tax payable, while nearly half of TDS-paying users ended the year with net capital losses.

The data also reveals a sharp skew: less than 5% of traders accounted for 87% of total TDS collections. While these high-frequency traders drive volumes, thin margins mean upfront deductions strain liquidity, a problem that also affects retail participants, albeit on a smaller scale.

Commenting on the findings, KoinX Founder and CEO Punit Agarwal said the company strongly supports reducing TDS to 0.1% across the industry. “TDS primarily serves as a reporting mechanism, not a tax burden—excess amounts are refunded at ITR filing,” he said. “A uniform cut would unlock capital tied up in upfront deductions, ease liquidity pressure, and reduce incentives to move trading activity offshore, without compromising oversight.”

Capital gains tax

On capital gains, the report points to a deeper structural misalignment. Investor outcomes in FY25 were almost evenly split, with 50.91% reporting net gains and 49.09% reporting net losses. Yet profitable users declared net gains of ₹2,861 crore, while taxable capital gains rose to ₹3,722 crore due to restrictions on loss offsets. Meanwhile, investors who collectively incurred net losses of ₹1,178 crore still paid tax on ₹180 crore of taxable gains.

“Nearly half of investors ended the year in losses but still paid tax on isolated gains,” Agarwal said. “No net gain means no capital gains tax—this principle applies across asset classes, and denying it for crypto undermines fairness.”

As policymakers fine-tune Budget 2026, the findings underscore the need to balance revenue collection with capital efficiency and tax neutrality, particularly as retail participation in digital assets continues to expand.