India’s 39 million verified crypto investors are sitting on roughly $2.1 billion in digital assets, and the government is taking a 30% cut of every gain they make. No negotiations, no sliding scale, no exceptions.

The flat tax on virtual digital assets, paired with a 1% tax deducted at source on every transaction, has been the law of the land since February 2022. And despite years of industry lobbying, the 2026-27 Union Budget changed exactly nothing about the framework.

The tax regime that won’t budge

Section 115BBH of India’s Income Tax Act lays out the rules in blunt terms. Any gains from virtual digital assets, which India calls VDAs, get taxed at a flat 30%. On top of that, every transaction triggers a 1% TDS, regardless of whether the trade was profitable.

The real kicker is the loss offsetting prohibition. In most developed tax regimes, if you lose money on one trade, you can use that loss to reduce the taxes owed on a winning trade. Not in India. Losses on crypto cannot be offset against gains, and they cannot be carried forward to future tax years.

Capital flight at industrial scale

Reports indicate that over 90% of India’s crypto trading activity has migrated to offshore platforms. The estimated annual capital outflow from this migration sits at approximately $6.1 billion. India’s entire domestic crypto holdings among its 39 million investors total just $2.1 billion. The money flowing out each year is roughly triple the amount that stays.

Meanwhile, the domestic tax revenue generated from all of this? Around 437 crore rupees.

Indian exchanges have felt the squeeze directly. When the TDS provision kicked in back in 2022, trading volumes on major platforms like WazirX and CoinDCX cratered almost immediately. Traders didn’t stop trading. They just started doing it on Binance, OKX, and other global platforms that operate beyond India’s regulatory reach.

The RBI wants to go even further

If the tax framework feels hostile, the Reserve Bank of India’s position is downright adversarial. As of mid-2026, the RBI has reaffirmed its advocacy for a complete ban on cryptocurrency. Not tighter regulation, not higher taxes. A full prohibition.

The central bank has also advised Indian banks to limit their exposure to crypto-related businesses. This creates a secondary bottleneck: even if traders want to operate domestically and pay the 30% tax, getting money in and out of crypto exchanges through banking channels remains difficult.

The RBI’s stance isn’t new. The central bank attempted an effective ban back in 2018 through a circular prohibiting banks from servicing crypto businesses. India’s Supreme Court struck that down in 2020.

What this means for investors

For the 39 million Indians holding digital assets, the calculus is straightforward but uncomfortable. Selling at a profit means handing nearly a third to the government. Selling at a loss means absorbing it entirely. And every transaction, regardless of outcome, triggers the 1% TDS.

The lack of loss offsetting is arguably the most damaging provision. In volatile markets, where prices can swing 10-20% in a single day, the inability to net losses against gains creates an asymmetric risk profile that punishes active participation.