India’s Budget 2026 signals tougher enforcement on crypto reporting, even though the country’s harsh tax regime for digital assets remains firmly in place. Instead of changing rates or easing rules, policymakers are sharpening the tools that make non-compliance more costly – especially for platforms that handle crypto transactions.
Below is a breakdown of what has changed, why it matters, and what it could mean for exchanges, intermediaries, and everyday traders.
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New penalty regime: From light-touch to enforceable consequences
The Union Budget 2026 introduces a dedicated penalty framework aimed at enforcing reporting obligations for crypto transactions under Section 509 of the Income-tax Act, 2025.
Under this provision, certain “prescribed reporting entities” will be required to file detailed statements of virtual digital asset (VDA) transactions with the tax department. These entities include:
– Crypto exchanges (domestic platforms and possibly those with local presence)
– Marketplaces facilitating crypto and VDA trades
– Intermediaries involved in execution, settlement, or custody of digital assets
Starting 1 April 2026, failing to meet these reporting obligations will no longer be a low-risk oversight. The new framework introduces:
– A daily penalty of Rs. 200 for not submitting the required statement on time, continuing until the report is filed.
– A flat penalty of Rs. 50,000 for providing incorrect, incomplete, or misleading information, or for failing to correct errors after they have been pointed out by authorities.
The shift is clear: what used to be more of a formal requirement with limited bite is being transformed into a rule backed by tangible, recurring financial consequences.
Industry voices acknowledge that this brings digital asset reporting closer to the standards applied to traditional financial products. The intention is to create a compliance environment where ignoring the rules is both risky and expensive for platforms.
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Who is directly affected – and who pays the price indirectly
The penalties are technically imposed on institutions, not on individual investors. That means the primary burden falls on:
– Domestic crypto exchanges
– Aggregators and marketplaces
– Infrastructure providers and intermediaries
However, traders and investors are unlikely to remain untouched. To shield themselves from fines and regulatory backlash, platforms will almost certainly tighten:
– KYC and user verification procedures
– Data collection for each transaction, including clearer identification of counterparties and sources of funds
– Transaction tagging and classification, ensuring that every trade or transfer is properly categorized
– Reconciliation and audit processes, to avoid discrepancies between reported data and on-chain or internal records
In practice, users may see more frequent requests for documentation, stricter onboarding requirements, delays in withdrawals or deposits when flags are raised, and potentially higher fees as exchanges absorb the costs of enhanced compliance infrastructure.
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No relief on tax: High rates stay, friction remains
While the reporting side has been tightened, the core crypto tax framework in India remains unchanged in the Budget:
– A 30% tax on gains from VDAs (with limited scope for deductions)
– A 1% tax deducted at source (TDS) on most crypto transactions
– No offsetting of losses from one VDA against gains from another, and no carry-forward of such losses
Industry participants have long argued that this structure suppresses liquidity, encourages short-term speculation over long-term investment, and makes India less attractive compared to more balanced jurisdictions.
Founders and executives in the local crypto sector continue to stress that such a regime:
– Reduces participation by retail investors
– Disincentivizes institutional engagement
– Hurts India’s position in the global digital asset ecosystem
At the same time, many still express cautious optimism that future policy debates could move toward a more nuanced framework – one that recognizes both the need for compliance and the importance of fostering innovation and growth.
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Why the enforcement push is happening now
The timing of the stricter penalty regime is not accidental. It follows a visible and measurable shift in trading behavior by Indian users in response to the tax and regulatory environment.
Recent data shows that in FY25, approximately 72.7% of India’s crypto trading volume – amounting to around Rs. 51,252 crore – had migrated to offshore exchanges. This indicates that:
– Domestic platforms are losing a large chunk of trading activity
– Regulatory and tax frictions are pushing users to foreign venues that may not share data with Indian authorities to the same extent
– Policymakers are concerned about both revenue leakage and reduced oversight of cross-border flows
Another striking metric is that TDS constituted just 0.60% of the overall turnover on Indian exchanges. Given the 1% TDS rule, this suggests that a significant portion of trading is taking place elsewhere, effectively bypassing the intended tax capture and oversight that domestic rules aim to secure.
With trading activity going offshore and compliance signals weakening, authorities have strong incentives to toughen their grip on the entities they can regulate: domestic reporting institutions.
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Rising scrutiny of undisclosed crypto income
The clampdown is not just about future reporting; it is also about past and present non-disclosure.
Tax authorities have already intensified their investigations into unreported crypto income. In one recent enforcement phase, authorities identified undisclosed virtual digital assets worth Rs. 888.82 crore and issued more than 44,000 communications to taxpayers suspected of failing to declare their crypto holdings or gains.
This indicates several trends:
– Access to better data, possibly from domestic exchanges, financial institutions, and international cooperation channels
– A willingness to use that data proactively to target non-compliant individuals
– A signal to the market that crypto is no longer in a “grey area” but squarely under the lens of the formal tax system
Investors who previously assumed that crypto activity would remain off the radar are now facing a very different reality.
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Is this the beginning of a broader “crackdown”?
The new penalties do not, by themselves, introduce bans or fresh restrictions on using or holding crypto. However, they fit into a wider pattern of:
– High taxation on gains
– Transaction-level friction through TDS
– Expanding reporting obligations
– Active pursuit of non-disclosure
From a regulatory strategy perspective, this looks less like an outright prohibition and more like a pressure-based containment approach: making crypto activity heavily monitored, taxing it aggressively, and ensuring platforms cannot ignore compliance.
Whether this evolves into an outright crackdown will depend on several factors:
– The scale of further offshore migration and capital flight
– The success or failure of enforcement actions in closing the tax gap
– International developments in crypto regulation and how India positions itself in that context
– Domestic policy priorities around innovation, fintech competitiveness, and financial inclusion
For now, the message is clear: the space for opaque or unreported crypto activity is shrinking.
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What exchanges and intermediaries need to prepare for
For platforms operating in or targeting the Indian market, the new framework has operational and strategic implications:
1. Compliance systems overhaul
– Investment in robust reporting infrastructure that can capture and structure transaction data in formats required by tax authorities.
– Upgraded monitoring tools for detecting anomalies, inconsistencies, or potential misreporting.
2. Stronger internal controls
– Clear allocation of responsibilities for reporting tasks.
– Internal audits and periodic reconciliations to ensure reported figures match actual activity.
3. User communication
– Transparent explanation to customers of why more data is being collected and how it will be used.
– Education initiatives around tax obligations and reporting expectations.
4. Cost management
– Assessment of how compliance costs affect business models, fees, and competitiveness in relation to offshore platforms.
Failure to adapt could not only trigger penalties but also damage reputation and invite deeper regulatory scrutiny.
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How traders and investors may need to adjust
For individual traders and investors, the tightened reporting environment and unchanged tax regime suggest several practical steps:
– Document everything: Keep detailed records of trades, transfers, and holdings, including timestamps, counterparties, and values at the time of transaction.
– Understand tax implications: Clarify how the 30% tax and 1% TDS affect your net returns, and factor this into strategy and position sizing.
– Expect more checks: Be prepared for enhanced KYC, additional questions from platforms, and occasional delays while compliance reviews are conducted.
– Assess offshore risks: While offshore exchanges may offer lower friction, they also raise questions about legal recourse, regulatory protection, and the possibility of future cross-border information sharing.
For high-frequency traders in particular, the combination of TDS and stringent oversight may push them to reconsider whether domestic venues remain commercially viable.
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Long-term policy choices: Balancing control and competitiveness
India is at a crossroads in shaping its digital asset policy. The current path emphasizes:
– Revenue protection through high taxes
– Data visibility through mandatory reporting
– Enforcement credibility through identifiable penalties
However, there is an underlying tension between control and competitiveness. If the system becomes too burdensome, serious market participants – both retail and institutional – can and likely will continue to move activity offshore, undermining the very goals the policy is trying to achieve.
A more balanced long-term framework could theoretically include:
– Rationalizing tax rates and revisiting the 1% TDS to reduce distortionary impacts on liquidity
– Allowing limited loss offsets to align with broader capital gains principles
– Providing regulatory clarity on classification, licensing, and consumer protection without default hostility
Whether such reforms materialize will depend on how policymakers interpret the data emerging over the next few years: volumes, revenue collections, and the degree of offshore leakage.
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Outlook: Tighter reporting today, uncertain reforms tomorrow
Budget 2026 does not fundamentally change the tax architecture for cryptocurrencies in India, but it changes the cost of non-compliance. Reporting obligations that were once easy to overlook now carry defined and enforceable financial penalties.
For exchanges and intermediaries, the era of light-touch reporting is over. For traders, the likelihood that crypto activity will escape regulatory notice is rapidly diminishing.
The bigger unanswered question is whether India will evolve from a high-friction, enforcement-heavy stance to a more balanced, innovation-friendly framework – or whether the current trajectory will solidify into a de facto long-term deterrent to domestic crypto activity.
Until that becomes clear, anyone operating in the Indian crypto market should assume that the direction of travel, at least in the near term, is toward more transparency, more oversight, and higher expectations of compliance.