The interest in cryptocurrencies has been on the rise among Indians in recent years, but the lack of clarity in regulations and aggressive taxation has made investing in cryptocurrencies or Virtual Digital Assets (VDA) in India quite complicated and costly.

With Budget 2026 on the horizon, there’s a growing sense of anticipation within the crypto ecosystem. Industry participants, tax experts, and investors alike are hoping for a fair approach. The central question remains: Will Budget 2026 mark a turning point for crypto taxation in India, or will the status quo continue?

Keep reading to know more about VDAs, the current income tax and TDS regulations, what experts expect from Budget 2026 and more

What are the expectations for further improvements from Budget 2026?
Although the government has not formally indicated any proposal, Budget 2026 is widely expected to focus on rationalisation and clarity rather than aggressive taxation, particularly as India transitions toward a more mature digital asset ecosystem.

“A major expectation is the rationalisation of the 1% TDS under Section 194S. Market participants have consistently highlighted that the current rate has adversely impacted liquidity, widened bid-ask spreads, and pushed trading volumes to offshore platforms. A reduction in rate or an increase in threshold is therefore widely anticipated”, says CA Mohit Gupta, Partner – PNAM & Co LLP.

Also read: Income Tax Budget 2026 Expectations Live

Under the current tax framework, losses arising from VDA transactions are not permitted to be set off against gains from other VDAs, nor can they be carried forward to subsequent years.

“This effectively results in taxation on gross gains without recognising genuine economic losses, leading to an inequitable outcome for investors. A more balanced and rational approach would be to permit set-off of losses within the VDA category and allow such losses to be carried forward for a limited number of years, for instance, 4 years / 8 years, “ says CA (Dr.) Suresh Surana.

Aishwary Gupta, Global Head of Payments & RWAs at Polygon Lab, talked about some key expectations from the Union Budget 2026.

Key Expectations from Budget 2026

Area
Industry Expectation Rationale Loss offset Allow VDA losses against VDA gains Aligns with equity/commodity treatment TDS rate Reduce from 1% to 0.01–0.1% Current rate causes liquidity drain Cost basis Include gas fees, transaction costs Reflects true acquisition cost Holding period Lower rate for long-term holdings Encourages investment over speculation Stablecoin clarity Differential treatment for stablecoins Different risk profile Reporting Standardized exchange reporting Reduces compliance burden

He also pointed out a comparison between tax treatment globally and India’s current approach to crypto taxation.

Global Context

Country
Tax Treatment UAE 0% for individuals Singapore 0% for individuals USA Capital gains treatment with loss offset UK Capital gains tax (10–20%) with exemption Germany Tax-free if held >1 year India 30% flat, no loss offset, no holding benefit

India’s current regime is among the harshest globally. The industry hopes for a balanced approach that maintains compliance while reducing capital flight to offshore platforms, he adds.What are the current income tax rules on cryptocurrency and TDS rates?
Any transfer of virtual digital assets is taxed under Section 115BBH of the Income-tax Act, 1961, at a flat rate of 30%, in addition to applicable surcharge and cess.

According to Gupta from Polygon Lab, the table below outlines the income tax treatment prescribed under Section 115BBH.

Aspect
Current Rule Tax rate on VDA gains 30% flat tax (irrespective of income slab) Surcharge & cess Applicable (effective rate can reach ~34.5%) Loss offset against other income Not allowed Loss offset against other VDA gains Not allowed Carry forward of losses Not permitted Deductions allowed Only cost of acquisition (no fees) Gifting of VDAs Taxable if value exceeds ₹50,000

Note: This treatment applies irrespective of holding period, investor type, or frequency of trading.

Importantly, while computing income from VDAs’ transfer, no deduction is allowed for any expenditure or allowance other than the cost of acquisition. Losses arising from such transfers cannot be set off against any other income nor carried forward to future years, Surana adds.

Also, to strengthen tax compliance, a 1% TDS under Section 194S of the IT Act applies on crypto transfers where the consideration exceeds Rs. 10,000 in a financial year (Rs. 50,000 in the case of specified persons), he continues.

What are the Virtual Digital Assets (VDAs) according to the Income Tax Act?
Under Indian law, cryptocurrencies fall under the category of Virtual Digital Assets (VDAs), and include any information, code, number, or token generated through cryptographic
means.

“The Government of India introduced the concept of Virtual Digital Assets (VDAs) through the Finance Act, 2022, by inserting Section 2(47A) into the Income-tax Act, 1961,” says Gupta, Partner – PNAM & Co LLP.

Under Section 2(47A), a VDA is defined as any information, code, number, or token—other than Indian or foreign currency—generated through cryptographic means or otherwise, which provides a digital representation of value and can be transferred, stored, or traded electronically, he adds.

Further, Indian and foreign currencies are expressly excluded, and the Central Government has been empowered to notify further exclusions to prevent overlap with regulated financial instruments, he continues.

According to Gupta from the Polygon Lab, here are the assets that fall under the VDA framework.

Asset Type
Covered under VDA? Cryptocurrencies (Bitcoin, Ether, etc.) Yes Utility Tokens Yes Governance Tokens Yes NFTs Yes (with limited exceptions) Stablecoins (USDT, USDC, etc.) Yes Indian Digital Rupee (CBDC) No (explicitly excluded) Any asset notified by government as excluded No

VDAs are treated as a distinct asset class, separate from securities, commodities, or currencies under Indian law.How to file ITR with VDA income?
Income earned from VDAs must be reported separately, and even fine details must be disclosed while filing the income-tax return (ITR). Taxpayers with VDA income must file ITR-2 or ITR-3, depending on whether the income is treated as capital gains or business income.

According to Gupta, Partner – PNAM & Co LLP. , the Income-tax Department has introduced a dedicated Schedule VDA, which mandates transaction-wise reporting. This includes disclosure of:

• The nature and type of VDA,
• Date of acquisition and date of transfer,
• Cost of acquisition,
• Sale consideration, and
• Income chargeable to tax under Section 115BBH.

Any TDS deducted under Section 194S must be reconciled with Form 26AS and the Annual Information Statement (AIS) and claimed appropriately in the return. Where a VDA has been received as a gift and taxed under Section 56(2)(x), the value subjected to tax becomes the cost of acquisition for subsequent transfers, he adds.

Given the increasing use of data analytics and third-party reporting by the tax department, accurate reporting and proper documentation are critical. Non-disclosure or misreporting of VDA income may attract interest, penalties, and reassessment proceedings, making crypto income a high-scrutiny area under the current tax regime, he continues.