Will India keep crypto innovation at home or away?

India's blockchain and cryptocurrency ecosystem is entering a decisive phase. As the 2026-2027 Union Budget approaches, the debate has shifted from whether cryptocurrencies should exist to how India plans to keep innovation, capital and jobs within its borders.

For many years, blockchain adoption in India was limited to pilot projects. That phase is now disappearing. Companies are ready to scale up, but policy uncertainty continues to hold them back.

From speculation to core infrastructure

Blockchain is no longer seen only as a trading tool. Indian companies are increasingly looking at digital infrastructure as a digital infrastructure with real-world use cases in payments, logistics, identity systems, healthcare, governance, and cross-border transactions.

Despite this change, many companies' efforts remain in testing mode. The main hurdle is not technology, but rather unclear rules regarding digital assets, compliance, and taxation. Without clarity, CIOs have a hard time approving long-term investments or moving blockchain into production systems.

Tax policy promotes overseas activities

Industry leaders say the biggest hurdle remains India's virtual digital asset tax framework, which will be introduced in 2022. A flat 30% tax on profits, no loss set-off, and a 1% tax deducted at source (TDS) on each trade reshaped market behavior.

According to Dilip Chenoy, chairman of the Bharat Web3 Association, the current design is doing more harm to the domestic platform than helping with surveillance.

“With no provision for loss set-off in the tax system, the 1% TDS reduces onshore liquidity and pushes a large portion of trading to offshore platforms outside of India's effective regulatory oversight,” Chenoy said.

He added that this result goes against the government's original goal of using TDS for traceability and transparency. “This has weakened compliant domestic exchanges and reduced regulatory visibility,” he said.

Chenoy sees the 2026-27 Budget as an opportunity to correct these distortions. “The current tax design impacts the broader blockchain ecosystem, encourages offshore investment, and limits India's ability to sustain innovation, jobs, and responsible growth,” he said.

Industry pushes for TDS relief

CoinSwitch co-founder Ashish Singhal is calling for a significant reduction in transaction-level taxes.

Singhal said that reducing the TDS for cryptocurrency transactions from 1% to 0.01% will significantly improve liquidity without compromising transparency. He also proposed raising the TDS threshold to Rs 500,000 to protect small investors from undue influence.

Regulations are maturing and policies need to catch up.

Surveillance will be strengthened from 2022. Reporting systems are in place, enforcement is improving, and tax collections from cryptocurrency transactions are steadily increasing. Industry voices say this is precisely why the original tax model, which focused on deterrence, should now be reevaluated.

What is needed is balance, not deregulation. Clear rules, fair taxation, and predictable compliance will help India position itself as a compliant hub for cryptocurrency and blockchain innovation.

The greater risk is at rest.

Globally, cryptocurrencies and blockchain have become mainstream. Institutional investors are pouring in, stablecoins are processing trillions of dollars, and infrastructure is rapidly expanding.

India has the users, talent and scale to compete. Experts say it risks losing its relevance.

Budget 2026-27 is no longer just a financial event for the cryptocurrency sector. This will be a test of whether India wants to build a digital asset economy at home or watch it grow in other countries.

Related: Indian crypto investors slam 'unfair' tax system ahead of Union Budget