Blab Crypto
Indias Crypto Market Shifts 80% of Trading to Futures After 1% TDS on Spot Trades
More than 80 % of all crypto trading volume on Indian exchanges now comes from futures and derivatives contracts, a sharp rise from the pre‑2022 period when spot trading dominated. The shift began after the Union Budget of 2022 introduced a 1 % tax deducted at source (TDS) on every spot transaction involving virtual digital assets (VDAs) such as Bitcoin and Ethereum.
The 1 % TDS applies to the consideration paid for the transfer of a VDA, not to the profit earned, and is collected by the payer before the transaction is completed. The tax was implemented on 1 July 2022 under Section 194S of the Income Tax Act, 1961, as part of the Finance Act 2022. Traders reported that the withholding requirement made frequent buying and selling of spot assets cumbersome, as each trade would trigger a tax deduction that could not be recovered until the end of the financial year.
According to a Money Control report cited in the CoinPedia article, spot trading volume fell by as much as 85 % after the tax was introduced. In contrast, futures and derivatives trading grew to account for more than 80 % of total crypto volume on Indian exchanges. The move is largely driven by retail traders who prefer futures contracts, which are not subject to the 1 % TDS.
However, the rise in futures trading has increased exposure to risk. Industry estimates indicate that 70 % to 80 % of Indian retail traders in crypto derivatives are losing money. The high leverage offered by many exchanges—up to 25×, 50×, and even 100×—means that a small adverse price movement can wipe out a trader’s entire position. Analysts estimate that retail traders lost more than US$12 billion in leveraged futures trading during 2025.
Retail participation is also high: about 70 % of all futures trading in India is conducted by individual investors. The majority of these traders use offshore platforms such as Binance and Bybit, where the 1 % TDS does not apply. According to the CoinPedia source, roughly 75 % of crypto trading in India takes place on such offshore exchanges.
The regulatory environment for crypto in India remains ambiguous. While buying, selling, and holding VDAs is legal, they are classified as virtual digital assets rather than currency, commodity, or security. Consequently, the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) do not have direct jurisdiction over spot or futures trading. The tax regime, however, is enforced by the Central Board for Direct Taxes (CBDT) under the Income Tax Act.
The Indian government has taken steps to monitor the market. In July 2026, the Financial Intelligence Unit (FIU) issued an order requiring exchanges to report over‑the‑counter (OTC) crypto deals above US$10,000. The RBI has also signaled a cautious stance toward crypto, stating that banks should stay away from crypto-related activities and that it is prepared to ban crypto if necessary.
The shift to futures has implications for market stability and investor protection. Because futures contracts are settled in cash or cryptocurrency and are not backed by a physical asset, they can be more volatile than spot trades. The lack of a formal regulatory framework also means that disputes between traders and exchanges may be difficult to resolve.
In summary, the 1 % TDS on spot crypto trades has driven a substantial portion of Indian crypto activity into futures and derivatives markets. While this shift has allowed traders to avoid the tax, it has also exposed many retail participants to significant risk, with a large proportion of them losing money. The regulatory landscape remains fragmented, with tax authorities enforcing the TDS but no clear oversight from SEBI or the RBI. Upcoming regulatory developments, such as the FIU’s reporting requirements and potential RBI guidance, may shape the future trajectory of crypto trading in India.
The 1 % TDS applies to the consideration paid for the transfer of a VDA, not to the profit earned, and is collected by the payer before the transaction is completed. The tax was implemented on 1 July 2022 under Section 194S of the Income Tax Act, 1961, as part of the Finance Act 2022. Traders reported that the withholding requirement made frequent buying and selling of spot assets cumbersome, as each trade would trigger a tax deduction that could not be recovered until the end of the financial year.
According to a Money Control report cited in the CoinPedia article, spot trading volume fell by as much as 85 % after the tax was introduced. In contrast, futures and derivatives trading grew to account for more than 80 % of total crypto volume on Indian exchanges. The move is largely driven by retail traders who prefer futures contracts, which are not subject to the 1 % TDS.
However, the rise in futures trading has increased exposure to risk. Industry estimates indicate that 70 % to 80 % of Indian retail traders in crypto derivatives are losing money. The high leverage offered by many exchanges—up to 25×, 50×, and even 100×—means that a small adverse price movement can wipe out a trader’s entire position. Analysts estimate that retail traders lost more than US$12 billion in leveraged futures trading during 2025.
Retail participation is also high: about 70 % of all futures trading in India is conducted by individual investors. The majority of these traders use offshore platforms such as Binance and Bybit, where the 1 % TDS does not apply. According to the CoinPedia source, roughly 75 % of crypto trading in India takes place on such offshore exchanges.
The regulatory environment for crypto in India remains ambiguous. While buying, selling, and holding VDAs is legal, they are classified as virtual digital assets rather than currency, commodity, or security. Consequently, the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) do not have direct jurisdiction over spot or futures trading. The tax regime, however, is enforced by the Central Board for Direct Taxes (CBDT) under the Income Tax Act.
The Indian government has taken steps to monitor the market. In July 2026, the Financial Intelligence Unit (FIU) issued an order requiring exchanges to report over‑the‑counter (OTC) crypto deals above US$10,000. The RBI has also signaled a cautious stance toward crypto, stating that banks should stay away from crypto-related activities and that it is prepared to ban crypto if necessary.
The shift to futures has implications for market stability and investor protection. Because futures contracts are settled in cash or cryptocurrency and are not backed by a physical asset, they can be more volatile than spot trades. The lack of a formal regulatory framework also means that disputes between traders and exchanges may be difficult to resolve.
In summary, the 1 % TDS on spot crypto trades has driven a substantial portion of Indian crypto activity into futures and derivatives markets. While this shift has allowed traders to avoid the tax, it has also exposed many retail participants to significant risk, with a large proportion of them losing money. The regulatory landscape remains fragmented, with tax authorities enforcing the TDS but no clear oversight from SEBI or the RBI. Upcoming regulatory developments, such as the FIU’s reporting requirements and potential RBI guidance, may shape the future trajectory of crypto trading in India.
