As India prepares for the Union Budget 2026, the domestic crypto industry is seeking a more outcome-aligned tax framework, including rationalisation of the capital gains tax rate, allowance for loss offsets, and a re-evaluation of the tax deducted at source (TDS) mechanism.

These recommendations are strongly supported by India’s Crypto Tax Story 2025, the annual report released by KoinX, a crypto taxation and portfolio-tracking platform. Based on anonymised data from nearly seven lakh Indian users with crypto transactions in FY 2024–25, the report offers a data-led assessment of how current tax rules translate into real investor outcomes.

The report finds that while the current 1% TDS has strengthened transaction-level reporting and compliance, it has also led to significant capital lock-in due to upfront deductions. Since TDS is applied to every transaction irrespective of gains or losses, it functions more as a volume-based compliance mechanism rather than a profit-linked tax, resulting in widespread refund dependency.

Commenting on the findings, Punit Agarwal, Founder & CEO, KoinX, said:

“TDS primarily serves as a reporting mechanism to enhance compliance and transaction visibility, not as a financial burden—excess amounts are refunded at the time of ITR filing, making it budget-neutral in the long run. We strongly advocate reducing the rate to 0.1% across the industry to unlock capital tied up in upfront deductions, particularly for high-frequency traders who drive the bulk of volumes yet face refunds in over 30% of cases. A uniform reduction would ease liquidity pressure, discourage migration to offshore platforms, and retain reporting effectiveness without weakening oversight.”

Key TDS Findings (FY 2024–25)

• Over 30% of TDS deducted exceeded users’ final tax liability

• Nearly half of TDS-paying users ended the year with net capital losses

• Less than 5% of traders accounted for 87% of total TDS collections

This skew highlights that while high-activity traders contribute a disproportionate share of TDS, thin trading margins mean both active and retail participants face liquidity constraints—albeit at different scales.

Capital Gains: Profits and Losses Tell a Different Story

On capital gains, the report flags a sharper misalignment between trading outcomes and tax liability. Investor results for FY 2024–25 were almost evenly split:

• 50.91% of users reported net capital gains

• 49.09% of users reported net capital losses

Despite this balance, taxable capital gains were significantly inflated due to the non-allowance of loss offsets. As a result, investors who ended the year with overall losses were still liable to pay tax on isolated profitable transactions.

“Nearly half of investors reported net losses, yet paid tax on individual gains because loss offsets are blocked. Across asset classes, the principle is simple—no net gain means no capital gains tax. Excluding crypto from this logic distorts incentives, undermines fairness, and risks pushing legitimate activity offshore,” Agarwal added.

Budget 2026 Implications

Through India’s Crypto Tax Story 2025, KoinX aims to provide policymakers and stakeholders with empirical inputs to evaluate capital gains rationalisation, loss-offset provisions, and the design of compliance mechanisms.

Ahead of the Union Budget 2026, the findings underscore the need to balance revenue considerations with capital efficiency, tax neutrality, and administrative simplicity—especially as retail participation in digital assets continues to expand.