India Budget 2026: No Tax Relief, Tighter Compliance, and New Jail Provisions for Defaulters

• The Union Budget left the 30% tax on gains and 1% TDS unchanged despite industry demands for relief.
• The Finance Bill 2026 introduces strict penalties. These include a ₹50,000 fine for reporting lapses and up to two years in jail for failing to deposit TDS over ₹50 lakh.
• Starting April 1, 2026, exchanges and wallet providers must report all transaction details to tax authorities to align with OECD standards.
• Domestic trading volume has collapsed from $2.2 billion to under $500 million as users flock to risky offshore platforms.

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Crypto investors in India hoped the 2026 Union Budget would offer a lifeline. Instead, the government tightened the screws.

The Finance Ministry has maintained the controversial 30% flat tax on virtual digital asset (VDA) gains and the 1% Tax Deducted at Source (TDS) on transactions. Beyond maintaining the status quo, the Finance Bill 2026 introduces a rigorous new compliance framework that expands reporting obligations and sharpens penalties for non-compliance.

Tighter Compliance and Jail Provisions

While tax rates remain unchanged, the regulatory net has widened. The new Finance Bill explicitly expands the definition of VDAs to cover crypto-assets built on distributed ledger technology.

Starting April 1, 2026, crypto exchanges, wallet providers, and intermediaries must report granular transaction details to tax authorities. This move aims to align India with the OECD’s crypto-asset reporting framework.

The consequences for non-compliance are severe:

• Non-filing of statements: A penalty of ₹200 per day.
• Inaccurate disclosures: A flat fine of ₹50,000.
• TDS Defaults: Failure to deposit tax collected on VDA transfers can now trigger prosecution. If the unpaid amount exceeds ₹50 lakh, the penalty includes rigorous imprisonment of up to two years.

Exceptions exist for cases where consideration is paid wholly in kind. However, the message is clear. The government is prioritizing enforcement over adoption.

The Offshore Exodus Continues

The refusal to lower the 1% TDS continues to bleed the domestic crypto ecosystem. Data indicates that domestic trading volumes have collapsed from roughly $2.2 billion before the tax regime to under $500 million today.

Consequently, approximately 75% of Indian crypto trading, valued at about $6.1 billion, has shifted to offshore platforms. Investors use VPNs and other methods to access foreign exchanges that do not deduct TDS.

This capital flight creates a dual problem.

1. User Risk: Offshore platforms often offer fewer consumer protections. This leaves Indian users vulnerable to hacks or frozen funds with little legal recourse.
2. Regulatory Blindspot: The central bank and tax authorities have warned that tracking offshore flows is difficult. This creates the exact lack of oversight the TDS was designed to prevent.

Adoption vs. Policy

The harsh policy stance of India in Budget 2026 highlights a widening gap between crypto usage and regulation. India still ranks first globally in grassroots crypto adoption. Yet the policy framework forces this massive user base into the shadows.

The timing of these tighter rules adds pressure to a market already in fear. Bitcoin recently dipped below $78,000, with $500 billion wiped from the global market cap since late January.

For now, the government appears uninterested in incentives. Instead of repatriating traders with a competitive tax structure, the Finance Bill 2026 focuses entirely on ensuring that those who remain compliant face zero margin for error.

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Editorial Note: This news article has been written with assistance from AI. Edited & fact-checked by the Editorial Team.

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