India is set to significantly ramp up oversight of its crypto market, with the Union Budget 2026 unveiling a robust penalty framework aimed at enforcing transaction reporting. This move signals a clear intent to strengthen accountability among crypto exchanges and intermediaries, even as the contentious crypto tax regime remains unaltered.
Bolstering Reporting Compliance
Effective April 1, 2026, the new framework mandates "prescribed reporting entities" to submit detailed statements of crypto-asset transactions to the tax department. Failure to furnish these required statements will incur a daily penalty of Rs. 200 until compliance is met. Furthermore, a substantial flat penalty of Rs. 50,000 will be imposed for reporting inaccurate or misleading information, or if errors are not corrected after being flagged. These penalties directly target reporting entities like crypto exchanges and marketplaces, rather than individual users. However, the ripple effect is expected to prompt platforms to enhance their data collection, transaction tagging, and reconciliation processes, indirectly influencing traders and operations across the digital asset ecosystem.
The Rationale Behind Stricter Enforcement
The tightening of enforcement comes against a backdrop of significant shifts in India's crypto landscape. Data reveals a substantial offshore migration of trading volumes, with reports indicating that a vast majority of Indian crypto trading in FY25 shifted to foreign exchanges. This trend is largely attributed to the existing tax structure, which maintains a 30% tax on virtual digital asset gains and a 1% tax deducted at source on transactions, along with restrictions on setting off losses. The low TDS collection on Indian exchanges further underscores how current policies have reshaped trading behavior. Moreover, tax authorities have intensified scrutiny of undisclosed crypto income, identifying substantial amounts and communicating with thousands of taxpayers for potential non-disclosure, emphasizing the government's push for greater transparency and compliance in the rapidly evolving digital asset space.
