More than 80% of crypto trading volume on Indian exchanges now originates from futures and derivatives, while spot trading has collapsed by as much as 85% since 2022, according to a Moneycontrol report published on July 15. The radical shift is a direct consequence of India's 1% Tax Deducted at Source (TDS) on every spot transaction of Virtual Digital Assets, introduced in the 2022 Union Budget.
The levy locks up trading capital and makes frequent buying and selling prohibitively expensive for active traders. Futures contracts, which track price without transferring ownership, currently do not trigger the 1% TDS, creating a powerful tax arbitrage that has reshaped the entire market. Retail investors now account for roughly 70% of all crypto futures trading in India, yet industry estimates cited by Moneycontrol indicate that 70% to 80% of these retail futures traders are losing money.
Domestic exchanges offer leverage of up to 100x, meaning a small adverse price move can wipe out a position entirely. India’s Securities and Exchange Board (SEBI) has separately documented comparable losses: retail traders lost more than $12 billion trading equity options and futures in a single recent year. Meanwhile, an estimated 75% of Indian crypto trading has migrated to offshore platforms like Binance and Bybit, where traders avoid both the TDS and the flat 30% income tax on crypto gains. India’s Financial Intelligence Unit requires reporting of OTC deals above $10,000, but enforcement offshore remains limited.
Digital assets are legal to buy, sell, and hold in India but are classified strictly as Virtual Digital Assets, not securities or legal tender. Neither SEBI nor the Reserve Bank of India directly oversees crypto derivatives trading. While the RBI has historically pushed for a ban, the government has chosen taxation as a control mechanism. With no reduction in the TDS rate signaled, the structural incentive favoring high-risk futures over spot is likely to persist, leaving the question of direct regulatory oversight for derivatives as the next key policy battleground.
