Indian cryptocurrency traders are increasingly favoring crypto futures over spot deals, driven by a confluence of factors including the potential for higher profits, tax efficiencies, and the availability of rupee-denominated margins. This trend signifies a shift in trading preferences within the Indian crypto market, with futures volumes now significantly exceeding those of spot transactions.
One of the primary reasons for this shift is the allure of higher potential profits through leverage. Futures trading allows traders to control larger positions with a smaller amount of capital, amplifying both potential gains and losses. While spot trading requires the full consideration to be paid upfront, futures contracts offer exposure of up to 50 times the margin amount, or even higher on some global exchanges. This leverage can be particularly attractive in the volatile crypto market, where prices can fluctuate rapidly, creating opportunities for quick profits.
Tax implications also play a significant role in the preference for futures trading. In India, crypto profits are taxed at a flat rate of 30%, with an additional 1% Tax Deducted at Source (TDS) on each transaction. However, TDS is not applicable on futures transactions, providing a significant tax advantage for futures traders. While profits from crypto futures trading are taxed under the head 'Profits & Gains of Business or Profession' (PGBP), this can still be more tax-efficient for frequent traders compared to the flat 30% tax and 1% TDS on spot trading. The Central Board of Direct Taxes (CBDT) is currently examining crypto derivatives and cross-border transactions, indicating a growing focus on regulating this area.
Another factor contributing to the popularity of crypto futures is the increasing availability of Indian Rupee (INR) based margins on domestic platforms. Previously, many exchanges only offered futures trading in USDT pairs, forcing traders to convert INR to USDT through potentially costly P2P conversions. Now, domestic platforms accept INR for margins, simplifying the process and attracting more traders. These exchanges convert the INR received as margin into USDT to execute futures trades on larger global exchanges, providing access to a deeper order book.
While crypto futures offer several advantages, they also come with significant risks. The high leverage involved can magnify losses, and liquidation can occur if the account balance falls below the required maintenance margin due to adverse market movements. It is crucial for traders to manage their margin and use stop-loss orders to mitigate these risks. The CBDT is also seeking feedback from cryptocurrency stakeholders on the need for new Virtual Digital Assets (VDA) legislation and its oversight, as well as the impact of current tax policies on trade migration. This suggests that the regulatory landscape for crypto futures may evolve in the future.
In conclusion, the shift towards crypto futures trading in India is driven by the potential for higher profits through leverage, tax efficiencies due to the absence of TDS, and the convenience of INR-based margins. However, traders should be aware of the inherent risks associated with futures trading and exercise caution. As the Indian crypto market matures, it is likely that regulations will continue to evolve, further shaping the landscape for both spot and futures trading.
