Will the 2026 Indian Budget Finally Bring Rules for Crypto Exchanges?

As the Union Budget 2026-27 approaches on February 1 (Sunday), anticipation is building across India’s booming cryptocurrency sector. Recent reports indicate the Ministry of Finance is actively consulting with the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) to shape a dedicated regulatory framework for crypto exchanges.

This marks a potential shift from the current patchwork system—where cryptos are legal as Virtual Digital Assets (VDAs), subject to strict 30% taxation on gains and 1% TDS on transactions, but lack comprehensive market oversight—to a more structured, rules-based regime.

The discussions highlight SEBI as the likely primary regulator for crypto exchanges. Under the emerging model, platforms would need mandatory registration, with enhanced supervision over trading practices, mandatory disclosures, market conduct standards, and stronger investor protection measures.

Meanwhile, the RBI would focus on critical areas like cross-border transactions, foreign direct investment (FDI), and capital flows, reflecting its longstanding caution about systemic risks from private cryptocurrencies while advancing its own Digital Rupee (CBDC) project.

This division of responsibilities appears to be a pragmatic compromise, drawing on SEBI’s proven expertise in overseeing securities markets and RBI’s mandate to safeguard monetary stability.

India’s crypto market has long been defined by high adoption rates but significant challenges. Despite FIU-IND registration requirements for anti-money laundering (AML) and KYC compliance—now covering 49 exchanges (45 domestic and 4 offshore)—the absence of a unified regulator has fueled enforcement gaps.

Anonymous, borderless transactions complicate tax tracking, money laundering prevention, and alignment with global standards like the OECD’s Crypto-Asset Reporting Framework (CARF). Billions in trading volume have migrated offshore due to high compliance costs and punitive taxes, creating a paradox like revenue generation exists, but visibility and domestic activity suffer.

Industry voices, including leaders from major platforms, are pushing for complementary reforms. They advocate reducing TDS to minimal levels (such as 0.01%), allowing loss set-offs, and rationalizing the flat 30% gains tax to encourage onshore participation and restore liquidity.

While major tax rollbacks seem unlikely in the immediate budget—prioritizing regulation over relief—the Finance Ministry’s engagement signals recognition that the current “tax-and-enforce” approach is unsustainable.

In my view, the Budget is highly likely to deliver at least strong indications or announcements toward formal rules and regularization for crypto exchanges. The ongoing high-level talks between the Finance Minister’s office, SEBI, and RBI—coupled with mounting evidence of offshore leakage, global precedents like the EU’s MiCA framework, and India’s massive user base—make continued inaction improbable.

These evolving rules and restrictions reflect a deliberate strategy, that the government isn’t banning crypto but is deliberately making it harder to operate outside strict compliance. The focus on enhanced KYC, geolocation tracking, and high taxation aims to increase transparency, reduce anonymity-driven misuse, and retain economic activity onshore—yet it risks pushing more users abroad, limiting innovation and tax revenue in the short term.

This “tax-first, regulate-later” approach has created a paradox. India boasts massive adoption (over 100 million users), but the ecosystem remains on the fringes without full investor safeguards or mainstream integration.

If Budget 2026 delivers a clearer SEBI-led framework—perhaps with minor TDS relief or loss set-off provisions—it could mark a turning point, transforming restrictions into structured growth.

This evolution is not about curbing innovation but building essential trust: protecting retail investors from fraud and volatility, improving transparency, curbing illicit flows, and keeping economic benefits (including tax revenue) within the country.

A thoughtful SEBI-led framework with RBI safeguards could transform India from a reluctant, high-adoption market into a mature, regulated fintech and Web3 hub. Stakeholders should watch the Finance Minister’s speech closely for signals on registration mandates, investor protections, and any initial tax adjustments.

Until then, crypto in India stays legal, taxable, and tightly controlled, with compliance as the price of participation. Stakeholders should prepare for even stricter enforcement while watching the Finance Minister’s speech for signals of pragmatic evolution.

If delivered with balance, February 1, 2026, could indeed mark a pivotal turning point for India’s digital asset ecosystem—one that aligns regulation with the nation’s broader ambitions in technology and innovation.

Naorem Mohen

Naorem Mohen is the Editor of Signpost News. Explore his views and opinion on X: @laimacha.