Crypto derivatives accounted for 80% or more of India’s domestic digital-asset trading volume as of July 15, 2026. Traders are shifting away from spot exchanges to sidestep the country’s 1 per cent tax deducted at source on spot transactions, exchanges and industry experts say.
Key Takeaways
- Crypto futures markets now capture 80% or more of India’s total domestic crypto trading volume, reversing spot exchanges’ historical lead.
- India taxes spot crypto trades with a 1 per cent tax deducted at source, while futures trades escape it entirely, pulling volume toward derivatives.
- Internal exchange data shows 70 to 80 per cent of crypto derivatives participants are losing money, with individual traders driving most of the activity.
- The Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) both decline authority over crypto trading, leaving derivatives without any leverage limit.
- The Financial Stability and Development Council has asked the RBI and SEBI to consider regulating the sector, according to government sources.
What Happened?
Leverage widens the gap further. Some smaller exchanges allow up to 100 times leverage on crypto futures, and a typical futures trader executes more than 50 trades a month, according to Giottus. SEBI caps leverage on equity derivatives at five times, a limit crypto futures never inherited, a gap flagged directly, per Moin Ladha of Khaitan & Co.
Daily transaction values on Indian crypto exchanges have surged to nearly $5 billion, as traders pile into futures free of the spot market’s tax drag. Individual investors drive roughly 70% of that futures activity, the same retail base absorbing most of the reported losses.
Section 115BBH of the Indian Income Tax Act is the root cause, a dynamic distinct from the more active US enforcement posture. It taxes virtual digital asset transfers at a flat 30% rate, with no deduction for expenses beyond the cost of acquisition and no set-off or carry-forward of losses. Many tax professionals instead treat futures profits as speculative business income, a category that does permit loss set-offs, making derivatives the more tax-efficient venue even before the 1% levy is counted.
Crypto is thriving because of the lack of regulatory clarity. In the last couple of years, a lot of F&O traders have migrated to crypto because of the low margins and ridiculous leverage they get in crypto F&O—leverage as high as 100x to 200x.
— Nithin Kamath (@Nithin0dha) July 15, 2026
From @moneycontrolcom article (link… pic.twitter.com/DSfcf3iN31
The Jurisdictional Vacuum
India has no dedicated crypto regulator because cryptocurrency is not legally defined as a currency, a commodity, or a security. Neither SEBI nor the Reserve Bank of India regulates crypto trading as a result, and the finance ministry has told Parliament that virtual digital assets remain unregulated in the country.
Ladha, a partner in Khaitan & Co’s corporate and financial regulatory practice.
He added that a well considered regulatory approach could help strengthen investor protection while supporting responsible market development.
A government official, speaking anonymously, said the RBI has pushed crypto oversight toward SEBI but that neither wants to take it on, because regulating the sector would mean formally recognising crypto, which the government does not want to do. The same official warned that investors could lose money completely if exchanges collapse, noting that equity markets carry safeguards crypto trading does not. That is the vacuum in one sentence: a tax code detailed enough to price every trade, sitting next to a regulatory apparatus that has not decided crypto is real enough to police.
A Tax Code With No Regulator Behind It
The tax framework built around Section 115BBH generates revenue without needing anyone to police the market it taxes. Around three-fourths of India’s crypto trading happens through foreign exchanges such as Binance and Bybit, largely to route around the domestic levies. Finance ministry data disclosed to the Rajya Sabha in December 2025 put the declared domestic VDA transaction value at Rs 51,180 crore for FY2024-25, yielding Rs 511.83 crore in TDS.
That collection has grown quickly. The government had earlier reported Section 194S TDS collections of Rs 157.9 crore for FY2022-23, meaning TDS receipts from VDA transfers have more than tripled in two fiscal years. Those official figures capture only compliant domestic spot trading; the larger derivatives market and offshore volumes go entirely unreflected in government tax receipts.
Implications for India’s Crypto Market
Some exchanges argue the picture is already shifting through a different channel. Tokenised real world assets already contribute nearly 15% of trading volume at Mudrex across spot and futures, a share the exchange expects to reach about 20 to 25% within a few quarters, according to Prateek Gupta, the platform’s head of business. Gupta said the broader tokenised RWA market has already exceeded $25 billion in volume globally this year.
Tokenised RWAs sit on regulated underlying instruments rather than anonymized derivatives flow, which could eventually hand Indian regulators a more traceable entry point into digital asset oversight than chasing offshore futures volume ever would.
The broader imbalance is self reinforcing. As long as spot trades carry a heavier, loss-blind tax than futures booked as speculative business income, capital is likely to keep migrating toward the venue with fewer investor protections rather than more, inverting what SEBI’s own equity-derivatives curbs were built to prevent retail traders.
CoinLaw’s Takeaway
Crypto futures still account for 80% or more of India’s domestic trading volume, the product of a tax code that taxes spot trades heavily while leaving futures largely tax and rule free. That reward structure favors the least protected corner of the market. Retail traders who cannot absorb rapid losses are the ones carrying leverage that no regulator currently limits.
A calibrated framework, the kind Moin Ladha and other securities lawyers have floated, would need to do two things Indian policy has so far avoided: give one regulator clear jurisdiction over crypto derivatives, and stop taxing losses out of the spot market so traders are not pushed toward the least regulated venue just to keep more of what they earn. Until that happens, the Financial Stability and Development Council’s request for RBI and SEBI to weigh in reads less like a policy in motion and more like a placeholder for a decision the government has not yet chosen to make.
