**Market Brief: India Crypto & VDA Sector (Budget 2026)** **Core Policy Update** The Union Budget 2026 has strictly maintained the status quo on crypto taxation, bypassing industry demands for relief. The existing **30%** flat tax on gains and the controversial **1%** TDS on transactions remain in full force. The ban on setting off losses against gains also continues, effectively taxing gross profits without accounting for net trading realities. **New Compliance Penalties** While tax rates remained static, the government tightened enforcement mechanisms. A new amendment introduces specific financial penalties for reporting failures, effective **April 1, 2026**: * **₹200 per day** for failure to furnish transaction statements. * **₹50,000** flat penalty for providing inaccurate information or failing to rectify errors. These provisions target reporting entities (exchanges and VDAs) to ensure strict adherence to Section 509 of the Income Tax Act. **Market Impact & Liquidity** The decision to retain the **1%** TDS is expected to perpetuate the "liquidity drain" on domestic exchanges. Industry data indicates that nearly **72%** of Indian crypto trading volume has already shifted to offshore platforms to bypass this levy. By refusing to lower the TDS to the requested **0.01%**, the government has prioritized transaction tracking over restoring onshore market depth. **Sector Sentiment** Industry response is mixed but largely somber. While some leaders view the new penalty clauses as a step toward "formalizing" the sector and removing regulatory ambiguity, the lack of economic rationalization is a major setback. The inability to offset losses remains a critical friction point, leaving traders with high tax liabilities even in net-loss scenarios. **Key Figures at a Glance** * **30%**: Tax on VDA gains (unchanged) * **1%**: TDS on transfers (unchanged) * **₹200/day**: New penalty for reporting delays * **₹50,000**: New penalty for inaccurate data * **72%**: Estimated trading volume moved offshore due to current tax structure