India's Finance Bill 2026 Strengthens Crypto Asset Compliance Framework
The Finance Bill, 2026 introduces significant regulatory tightening for crypto assets in India, marking a pivotal shift towards enhanced compliance and oversight. While the government has maintained existing tax rates, the new provisions expand reporting obligations and introduce sharper penalties for non-compliance, effective from April 1, 2026.
Expanded Reporting Requirements for Crypto Entities
The legislation mandates that crypto exchanges, wallet providers, and intermediaries must now submit detailed transaction reports to tax authorities. This move aligns India with the Organisation for Economic Co-operation and Development's (OECD) crypto-asset reporting framework, fostering greater transparency in the digital asset ecosystem.
Broadened Definition of Virtual Digital Assets
The bill explicitly expands the definition of Virtual Digital Assets (VDAs) to include "crypto-assets" built on distributed-ledger technology. This clarification ensures that a wider range of digital assets falls under regulatory scrutiny, closing previous loopholes.
Enhanced Penalties for Non-Compliance
The Finance Bill introduces stringent penalties to enforce adherence:
- Daily Penalty: Non-filing of required statements will incur a penalty of Rs 200 per day.
- Inaccuracy Fine: Inaccurate disclosures or due-diligence failures attract a substantial fine of Rs 50,000.
- Prosecution for Tax Evasion: Failure to deposit taxes collected on VDA transfers can lead to prosecution, with potential imprisonment of up to two years if the amount exceeds Rs 50 lakh.
Notably, transactions where consideration is paid entirely in kind are excluded from these provisions.
Uncertainty Persists on Offshore VDA Reporting
Despite these clarifications, ambiguity remains regarding offshore-held crypto assets. Meyyappan Nagappan, partner in the tax practice at Trilegal, highlighted that the memorandum does not specifically include VDAs in the foreign asset disclosure scheme. This leaves uncertainty about whether such assets must be reported in Schedule FA and if they qualify under the scheme.
Broader Budget Context and Public Reaction
The crypto provisions are part of the larger Union Budget 2026-27, which has sparked varied reactions. For instance, West Bengal Chief Minister Mamata Banerjee criticized the budget as a "Humpty Dumpty" plan, claiming it offers "nothing for the common man." Meanwhile, the budget outlines changes in tax slabs and adjustments in prices for various goods and services, impacting household finances across the nation.
Overall, the Finance Bill 2026 represents a decisive step by the Indian government to regulate the burgeoning crypto market, balancing innovation with robust compliance mechanisms to safeguard the financial system.
