India's 2026 Budget Takes a Hardline Approach to Crypto Regulation: No Change in Tax Rates + New Penalties for Violations, Investors' Costs May Rise Again

On February 2, news reports indicated that the Indian government, in the 2026–2027 fiscal year federal budget, confirmed that it will continue to maintain the current cryptocurrency taxation and withholding tax system, while introducing a stricter reporting penalty mechanism. This policy combination signifies that India’s virtual digital asset (VDA) regulation enters a phase of “high tax rate + strong compliance,” attracting significant market attention.

According to amendments to the Finance Act, all entities required to report cryptocurrency transactions to tax authorities will face daily fines if they fail to submit reports within the stipulated timeframe. Specifically: a fine of 200 rupees (approximately $2.20) for each day of delay until the report is submitted; if the reported information contains errors or remains uncorrected after being flagged, an additional fixed fine of 50,000 rupees (approximately $545) will be imposed. The new regulations will take effect on April 1, 2026.

This penalty framework applies to reporting entities covered under Section 509 of the Income Tax Act and will be implemented through amendments to relevant regulations. The Ministry of Finance, in its explanatory memorandum, stated that this move aims to improve transparency in virtual digital asset transactions, reduce underreporting and misreporting, thereby strengthening tax compliance for crypto assets.

It is noteworthy that India has not made any adjustments to core tax rates. Currently, cryptocurrency trading profits are still subject to a flat 30% income tax, with an additional 1% TDS (Tax Deducted at Source) withheld on each transaction. For a long time, industry insiders have generally believed that this mechanism significantly reduces trading frequency and may drive funds and users to overseas markets.

Some industry representatives expressed disappointment that the “tax system remains unchanged.” Ashish Singhal, co-founder of CoinSwitch, stated that the current framework, which taxes without allowing loss deductions, is extremely unfriendly to retail users. He suggested lowering the TDS on VDA transactions from 1% to 0.01% and increasing the exemption threshold to 500,000 rupees to improve liquidity and reduce the burden on small investors.