As India gears up to sharpen its fiscal priorities ahead of the Union Budget 2026, the virtual digital assets (VDA) and web3 ecosystem finds itself at a strategic inflection point. India today ranks among the world’s largest blockchain users, with 35 million active users across centralized exchanges, over 1,200 startups, and boasts one of the highest adoption rates, according to Hashed Emergent, alongside a fast-growing fintech market. The entire web3 market in India is expected to reach USD 53,182.9 million by 2030, according to Grand View Research.

Yet, despite these numbers, much of the economic value creation linked to crypto trading, blockchain startups, and web3 innovation continues to accrue offshore. The upcoming budget is being viewed as a moment to rebalance regulatory caution with economic pragmatism. 

SB Seker, Head of APAC, Binance, said that India’s rapid adoption of blockchain and virtual digital assets (VDA) reflects both the scale of its digital economy and growing participation by retail users. 

“The forthcoming budget presents an opportunity to strengthen the VDA ecosystem through measured regulatory and tax refinements that protect users, maintain financial stability, and support responsible market development,” said Seker. 

Seker feels that from a tax perspective, it is important to bring a pragmatic framework focused on capital gains realised, with provisions for limited loss set off and removal on transaction level levies in favour of net-revenue generating corporate taxes. This can improve fairness for retail participants and indicate to them that India has moved past the tax-and-deter regime towards a fuller license-and-supervise one. 

“Clear, consistent operating standards for VDA platforms, aligned with India’s AML/KYC and investor protection priorities, will encourage responsible capital investment, create skilled jobs, and build domestic capabilities. India’s approach to blockchain governance, combined with its strong digital public infrastructure, provides a solid foundation to integrate innovation with transparency, financial inclusion, and economic growth objectives. A balanced regulatory environment that safeguards users, supports innovation, and ensures predictable taxation will help India convert high participation into durable economic value and reinforce its position as a leading fintech hub,” added Sekar. 

India formally brought VDAs into the tax net in FY23, introducing a flat 30 per cent tax on gains and a 1 per cent tax deducted at source (TDS) on every transaction. While the move succeeded in improving traceability and signalling regulatory seriousness, its market impact has been significant. Post the implementation of TDS, domestic exchange trading volumes declined by over 70 per cent, with a substantial shift of Indian-origin liquidity to offshore platforms.

Despite the shift, adoption has not slowed. India consistently ranks in the top five globally for crypto adoption, driven by retail participation and remittances. Separately, India accounts for over 12 per cent of global Web3 developers, making it the second-largest developer base globally after the US. 

Nischal Shetty, Founder, WazirX, said that while the country approaches this year’s budget, there lies a clear opportunity to fine-tune a framework that supports transparency and compliance while fostering innovation. The current framework needs to be reconsidered in light of how Web3 has matured over the last couple of years globally, both in adoption and institutional participation, driven by an evolving regulatory environment.

“A calibrated reduction in transaction-level TDS and a review of loss set-off provisions could help restore onshore liquidity, improve compliance, and ensure that more economic activity remains within India’s regulated perimeter, without compromising oversight or enforcement,” said Shetty. 

Regulatory signals have also evolved lately, with VDA platforms now required to comply with Financial Intelligence Unit (FIU) registration, AML reporting, and KYC norms. 

“Clear guidelines on permissible activities, compliance standards, and reporting obligations, such as the latest guidelines issued by FIU for exchanges operating in India, will strengthen investor confidence and help build a sustainable digital asset ecosystem. With the right policy, the crypto industry could help India achieve a USD 5 trillion economy target,” added Shetty. 

According to industry experts, what’s expected is recalibration, not deregulation. A widely discussed topic is rationalisation of transaction-level taxation, particularly a reduction in TDS to improve onshore liquidity and compliance – all while maintaining robust reporting standards. Global regulatory comparisons show that major crypto economies now tax crypto largely at the point of realised capital gains rather than transaction incidence, enabling better market efficiency without compromising oversight.

Vikas Gupta, Country Manager- India, Bybit, feels that rationalising the existing 30 per cent tax on virtual digital assets and revisiting the 1 per cent TDS by reducing it to a more practical level, such as 0.1 per cent, would help bring users back into the regulated domestic ecosystem, improve compliance, and support stronger market liquidity. 

“A balanced and progressive tax framework would incentivise long-term participation over short-term speculative activity, strengthen transparency, and enhance investor confidence. As global markets increasingly adopt differentiated and pragmatic approaches to crypto taxation, it is important for India to remain competitive and innovation-friendly. A supportive and forward-looking policy environment can accelerate Web3 innovation, foster blockchain-based entrepreneurship, generate high-quality jobs, and firmly position India as a global hub for digital assets and next-generation financial technologies,” said Gupta. 

There is also anticipation of clearer operating guidelines for exchanges, custodians, and Web3 firms. Such clarity could unlock institutional participation, spur venture capital, and support job creation in blockchain engineering, cybersecurity, and financial infrastructure roles.

“Greater policy clarity could also unlock new lines of innovation-led businesses, enabling India’s vibrant Web3 ecosystem and deep pool of developers and technology talent to be utilised more effectively and scaled more responsibly. At the same time, a more welcoming and well-defined regulatory framework would allow India to participate more actively in the global crypto economy, align with international standards, and reinforce confidence that policy is actively guiding the sector, encouraging wider participation and access to global opportunities. Globally, this would further strengthen India’s significance in the digital asset sector,” said Raj Karkara, COO, ZebPay

India is targeting a USD 5 trillion economy and positioning itself as a digital governance leader. With this backdrop, the policy direction signalled in Budget 2026 will be critical in determining whether India remains merely a high-usage market or evolves into a value-generating global Web3 hub.