Budget 2026: Crypto Startups To Be Penalised For Non-Disclosures

While the Union Budget 2026-27 did not bring up cryptocurrencies and virtual digital assets as a prominent area of focus, Nirmala Sitharaman proposed increasing the reporting compliance burden for crypto startups, and a related penalty framework for non-compliance.

Under the proposals, entities dealing in cryptocurrencies and virtual assets could face a penalty of INR 200 per day for non-furnishing of transaction statements and a flat INR 50,000 for furnishing inaccurate particulars or failing to correct them.

The FM said the move was meant “to ensure compliance with section 509 of the Income-tax Act, 2025 and create a deterrence for non-furnishing of statements or furnishing inaccurate information in respect of crypto assets.”

At the moment, there is no penal provision in the Income-tax Act, 2025 to ensure accurate and timely disclosures by crypto exchanges and trading platforms. The new rules, if accepted, will come into effect from April 1, 2026.

“The introduction of specific penalty provisions is a positive milestone for the crypto industry.

Now, the government has formalised high standards of tax compliance and reporting for both users and VASPs. This validates the “Compliance-First” model of Indian platforms like CoinSwitch, shielding users from reporting risks and aligning with compliance goals,” Ashish Singhal, cofounder of PeepalCo-operated crypto platform CoinSwitch

He added that the platform will continue to work with the government towards a balanced, user-first tax regime that pairs robust oversight with economic viability.

Meanwhile, CoinDCX spokesperson told Inc42 that the platform has always advocated to remain tax compliant. “Over the years, we’ve even launched many education driven initiatives to promote tax compliant transactions. We’ve always remained clear on our stance, and this was expected.”

New Compliance Reality For Crypto Startups

Incidentally, India’s financial intelligence unit (FIU) had moved in January 2026 to classify crypto exchanges as reporting entities under the Prevention of Money Laundering Act (PMLA).

As a whole, the industry welcomed this move, calling it a decisive step in recognising and regulating crypto exchanges entities.

The updated guidelines include mandatory live detection through selfies and geo-tracking during the onboarding process, along with additional compliance measures for crypto exchanges.

While the move was welcomed by many industry players as a sign of strengthening regulations to boost retail investor confidence, others said that the costs of complying with these guidelines will hinder the growth of crypto startups.

The massive adoption of cryptocurrency in India is one reason why cryptocurrency exchanges have called for official regulated status for the asset class. Chainalysis’s 2025 Global Crypto Adoption Index puts India at the top spot when it comes to crypto trading activity as of September 2025.

“Exchanges will face higher operational and compliance costs due to enhanced verification, monitoring systems, and reporting requirements. Integrating these rules will require investments in technology, compliance teams, and partnerships with KYC providers, but it also reduces regulatory risk in the long run,” Sathvik Vishwanath, cofounder and CEO of crypto exchange Unocoin, told Inc42 in January after the new FIU disclosure rules.

But others were of the opinion that new KYC regulations and compliances in absence of rules or clarity on how to run the business can cripple many new companies and startups. “Crypto startups now face high compliance costs, including the need to hire new full-time employees even when there is no clarity on the regulation side,” added Aishwary Gupta, head of global payments at blockchain unicorn Polygon.

Along with the 2022 introduction of 30% tax on crypto gains and 1% tax deducted at source for all crypto transactions, these moves are seen as a way to legitimise crypto trading in India, despite there being no official call on the legal status of cryptocurrencies in India.

Some call these shadow regulations for cryptocurrency even though there is no official notification denoting crypto as an asset class. For instance, at the moment, crypto assets do not have the investor protection mechanisms that come with investments in securities, equities, AIFs and other asset classes that are regulated.

CoinSwitch’s Singhal believes that while compliance and surveillance are positive changes tightened, what the ecosystem needs is economic rationalisation to retain India’s Web3 and crypto innovation and talent.

“The 1% TDS, lack of offset of losses and the 30% flat capital gains rate, create an asymmetric environment for genuine participation. These measures risk driving Indian capital toward non-compliant offshore platforms, leaving users vulnerable to legal and financial scrutiny.”

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