**Market Brief: India Crypto Sector & Budget 2026** **Current Landscape: The Offshore Exodus** As Finance Minister Nirmala Sitharaman prepares to present the Union Budget 2026-27 on February 1, the Indian crypto sector stands at a critical juncture. The strict tax regime introduced in 2022—specifically the flat **30% tax on gains** and **1% Tax Deducted at Source (TDS)**—has triggered a massive flight of capital. Recent industry data highlights a severe impact on domestic exchanges: * **91.5%** of Indian crypto trading volume has shifted to offshore platforms as of late 2025. * Approximately **₹4.87 lakh crore** in trading volume migrated between October 2024 and October 2025. * The Indian treasury faces an estimated revenue loss nearing **₹36,000 crore**, with uncollected TDS alone accounting for over **₹11,000 crore**. Despite these hurdles, India remains the **#1 nation for global crypto adoption** (Chainalysis 2025), with domestic user bases exceeding **2.5 crore** across major platforms like CoinSwitch and CoinDCX. **Budget 2026: The Core Demands** The Bharat Web3 Association (BWA) and major exchange heads have submitted a unified "survival wishlist" to the Finance Ministry. The industry argues that the current framework acts as a "deterrence model" rather than a revenue model. **1. Rationalization of TDS** The primary demand is a reduction of TDS from **1% to 0.01%**. * **Rationale:** The 1% levy sucks liquidity out of the market, making high-frequency trading unviable on compliant Indian exchanges. * **Expected Impact:** A reduction to 0.01% would maintain the government's "tracking and traceability" objective without killing market depth. **2. Provision for Loss Set-Off** Currently, traders cannot offset losses from one asset (e.g., Bitcoin) against profits from another (e.g., Ethereum). * **The Ask:** Allow set-off of losses within the Virtual Digital Asset (VDA) class, aligning crypto taxation with equities and other financial instruments. * **Investor Sentiment:** A January 2026 survey indicates **66% of investors** view the current regime as "unfair," with **59%** admitting they reduced trading activity solely due to tax pressure. **3. Regulatory Clarity** Beyond tax, the sector seeks a formal regulatory bill. The demand is for VDAs to be treated as a regulated asset class under the purview of SEBI or a dedicated body, moving beyond the current PMLA (anti-money laundering) compliance mandates. **Market Outlook** The consensus among stakeholders is that Budget 2026 is a "make or break" event for the onshore industry. If the government maintains the status quo, experts predict the near-total dominance of offshore/shadow platforms, leaving Indian users vulnerable to fraud without legal recourse. Conversely, a tax reduction could instantly repatriate billions of dollars in volume, reviving domestic liquidity and boosting tax revenues through higher compliance.