- Spot crypto transactions are hit with a 1% tax upfront, and profits are taxed at 30%.
- Crypto futures trading doesn’t trigger 1% TDS, making it more appealing for traders.
- In India, 70% to 80% of traders in the derivatives market are losing money.
Futures trading now makes up about 80% of crypto volume on Indian exchanges, a big change from previous years when spot trading dominated the market. The change is primarily attributed to tax arbitrage opportunities created by India’s crypto tax rules.
To be more precise, the main factor is the 1% TDS (tax deducted at source) rule from India’s 2022 budget. Spot crypto transactions are hit with a 1% tax upfront, and profits are taxed at 30%. Additionally, losses usually can’t be used to offset other gains.
On the other hand, crypto futures trading doesn’t trigger the same 1% TDS, which makes it a lot more appealing for active traders.
According to internal exchange data in India, 70% to 80% of traders in the derivatives market are losing money. The losses continue to happen even as daily trading volumes on domestic exchanges are estimated to have jumped to nearly $5 billion.
Lack of Regulatory Oversight
Currently, India’s crypto derivatives market falls into something of a regulatory gray area.
The RBI (Reserve Bank of India) doesn’t oversee crypto trading, and SEBI (Securities and Exchange Board of India) hasn’t taken full control of crypto futures. That means there are no leverage limits or many of the usual market protections in place.
Some exchanges reportedly offer leverage as high as 100x, meaning a trader can control a position 100 times the size of their actual capital. Crypto exchange Giottus says the typical futures trader makes over 50 trades a month.
Moin Ladha, a partner at Khaitan and Co law firm, commented on this development, saying, “There is a case for a calibrated regulatory framework for crypto futures, particularly given their leveraged nature and the potential risks for retail participants.”
RBI Doubled Down on its Anti-Crypto Stance
Last week, the RBI once again made it clear that it leans toward banning crypto rather than legalizing it. India’s central bank warned that privately issued cryptocurrencies and stablecoins could threaten financial stability, control over monetary policy, capital controls, and consumer protection.
The RBI has reportedly pushed lawmakers to shield banks and regulated financial firms from crypto exposure, even while places like the US, Europe, Hong Kong, Singapore, and the UAE are moving toward clearer crypto regulation.
Related: RBI Rejects Crypto Legal Status at India’s 7th Parliamentary Meeting
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