India’s Crypto Futures Boom: 100x Leverage With Zero TDS & VDA Tax

Crypto Futures Outshine Spot Trading in India as Tax Burden Shifts Market Dynamics

The Indian cryptocurrency market is undergoing a dramatic transformation. Over the past year, a growing number of retail investors have migrated from spot trading to crypto futures, making derivatives the dominant force in daily volumes. According to recent industry data, futures now account for nearly 70 to 80 percent of overall trading activity on Indian exchanges—a striking reversal from just two years ago.

The shift underscores the powerful impact of taxation policy, regulatory loopholes, and the lure of leverage. It also highlights a deeper trend: Indian retail investors are adapting quickly to financial rules, seeking cost-effective ways to participate in the global crypto economy, even when official policies try to discourage them.

The Rise of Futures Trading in India

Until recently, crypto futures trading was largely the domain of global giants such as Binance, Bybit, and OKX. Indian investors seeking exposure to perpetual contracts often had to use international platforms, sometimes navigating regulatory restrictions to do so. That changed less than a year ago when several Indian exchanges began rolling out futures products domestically.

Source: X

The response was immediate. Futures volumes surged, quickly surpassing spot trading by a wide margin. Data from Moneycontrol and independent analytics firms suggest that perpetual futures now make up between 70% and 80% of total daily trading volumes on local platforms. By comparison, spot trading—which once defined India’s crypto scene—has been relegated to the margins.

This transformation is not merely the result of innovation or investor appetite for advanced products. At its core, it is a direct consequence of taxation.

Taxation and the Decline of Spot Trading

The turning point came with the Union Budget of 2022, when the government introduced stringent tax rules for digital assets. Under the new regime:

• A 1% Tax Deducted at Source (TDS) was applied on every crypto transaction.

• A 30% flat tax was levied on all gains from Virtual Digital Assets (VDAs).

• More recently, in July 2025, an 18% Goods and Services Tax (GST) was imposed on trading fees.

For many retail investors, these measures made spot trading prohibitively expensive. Even small transactions attracted heavy taxes, making it nearly impossible to sustain profitability. As one Mumbai-based trader explained, “If you’re paying 30% on profits, 1% on each trade, plus GST on fees, you’re fighting against the system before you even make money.”

Futures trading, however, has so far escaped this tax dragnet.

The Grey Zone of Crypto Futures

Unlike spot transactions, crypto futures in India do not currently fall under the same TDS or 30% tax rules. Instead, they are treated more like traditional derivatives trading, where only standard trading fees apply. This absence of clarity in the tax code has effectively created a loophole, allowing investors to avoid the heaviest tax burdens while still participating in the market.

A 2023 study by the National Institute of Public Finance and Policy (NIPFP) revealed that 65% of Indian traders preferred futures because of this favorable treatment. By 2025, the number is even higher, with most retail volumes now concentrated in derivatives rather than spot markets.

This tax arbitrage has made futures the default choice for cost-conscious traders, creating a feedback loop: more volumes bring more liquidity, which in turn attracts more traders.

The Appeal of Leverage

Beyond tax advantages, leverage remains the biggest draw of futures trading. Indian exchanges now offer leverage ranging from 10x to 100x, allowing traders to control positions far larger than their actual capital.

For example, an investor with Rs 1,000 can potentially take a position worth Rs 100,000. Such opportunities make futures immensely attractive to retail investors hoping to amplify returns.

However, leverage is a double-edged sword. While it magnifies profits, it also multiplies losses. Regulators, including the Reserve Bank of India (RBI), have repeatedly warned that leveraged trading could destabilize markets and wipe out the savings of inexperienced traders.

“High leverage in unregulated environments is a recipe for disaster,” said a senior financial analyst at a Delhi-based brokerage. “It encourages gambling behavior and could lead to systemic risks if retail investors are overexposed.”

Retail Frenzy and Changing Investor Behavior

What makes this trend particularly striking is the demographic shift. Futures trading in India is no longer dominated by institutional players or sophisticated investors. Instead, retail participation has exploded.

This phenomenon was confirmed in a recent survey by NIPFP, which found that most new entrants into the crypto space prefer futures precisely because they are less taxed. In other words, it is not innovation driving adoption—it is tax avoidance.

The irony, according to experts, is that government policy meant to curb crypto enthusiasm has instead driven traders into riskier products.

A Regulatory Grey Zone

For now, crypto futures and options (F&O) trading remain in a regulatory grey area. Spot markets are heavily policed, taxed, and tracked. Futures, however, fall outside the immediate reach of India’s existing crypto tax framework.

This uneven playing field has created incentives for risky behavior. Traders who might otherwise stick to simple buy-and-hold strategies are now experimenting with leveraged derivatives, often without adequate knowledge of risk management.

Experts warn that regulators must act swiftly to address the imbalance. “If the government fails to clarify futures taxation, the market will continue to tilt toward risky speculation,” said a policy researcher in Bengaluru. “We need a balanced framework that ensures investor protection while allowing innovation to flourish.”

Broader Implications for India’s Crypto Ecosystem

The rise of futures trading reflects a broader dilemma for India’s crypto sector. On one hand, heavy taxation on spot trading has discouraged innovation, slowed the development of user-friendly products, and reduced transparency. On the other hand, regulatory silence on futures has unintentionally fueled a speculative boom.

The long-term consequences could be severe. If retail investors face widespread losses from overleveraged positions, confidence in the sector may collapse. This would undermine India’s ambition to position itself as a hub for Web3 innovation and digital finance.

At the same time, exchanges that rely heavily on futures volumes may find themselves vulnerable to sudden regulatory crackdowns. A single policy decision—such as extending TDS to derivatives—could drastically reduce volumes and profitability.

Conclusion: A Double-Edged Opportunity

The surge of crypto futures in India is both a sign of market adaptability and a warning about unintended consequences. Investors are flocking to derivatives because they offer tax relief and high leverage, but these very factors could destabilize the ecosystem if left unchecked.

For policymakers, the challenge is clear: develop a coherent framework that levels the playing field between spot and futures trading, closes harmful loopholes, and ensures that investor protection remains at the core of India’s crypto strategy.

Until then, crypto futures will remain the preferred choice for India’s retail traders—an option that offers short-term gains but carries long-term risks.

Writer @Erlin

Erlin is an experienced crypto writer who loves to explore the intersection of blockchain technology and financial markets. She regularly provides insights into the latest trends and innovations in the digital currency space.

 

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