In India, cryptocurrencies are not accepted as legal tender and are regulated and taxed as Virtual Digital Assets (VDA) for income tax purposes at 30% on gains and a 1% Tax Deducted at Source (TDS) on transfers. Additionally, there is oversight of the market via the Financial Intelligence Unit (FIU-IND) for certain entities for the purposes of anti-money laundering (AML) objectives.
There has been a recent shift in the Indian cryptocurrency market, with traders moving away from spot trading toward crypto derivatives. The crypto derivatives market appears to have a more lenient tax burden. To exploit this tax arbitrage, crypto exchanges have popularised a derivative instrument called Perpetual Futures.
The idea of Perpetual Futures (PF) is not new and was first proposed by Robert Shiller in 1993. One of the unique features of a PF contract is that it has no expiry. A payout occurs at predefined intervals, and the quantum of payout and its recipient are decided by a funding mechanism. These payouts usually happen every 8 hours, though the actual interval may vary according to the exchange. Such a mechanism exists to ensure that the difference between the spot and futures price does not diverge too much.
Another unique feature that has developed in decentralised crypto markets (as opposed to centralised exchanges) is the use of the Automated Market Maker (AMM) model to provide liquidity. In the AMM model, instead of traditional order books, liquidity pools built on smart contracts provide liquidity to market participants. The liquidity pools are built using token pairs provided by users, also known as liquidity providers. Liquidity providers are compensated by receiving a proportionate share of the trading fees. Prices in the AMM model are determined algorithmically, with the specific algorithm differing across exchanges.
In the Indian context, the crypto PF market is constituted almost entirely by retail traders. Institutional activity has not picked up. A major consequence of this is that there is restricted liquidity in the market. To mitigate this, some crypto exchanges in India provide users with liquidity sourced from international exchanges. Compounding the issue of lack of sophisticated players in the market is the absence of adequate measures to mitigate counterparty risk, settlement risk, default risk and the like. For instance, there are no circuit breakers either in the spot or the futures market to cool periods of extreme volatility. This, combined with the high leverage, up to 75-100x or even more (as compared to up to 10-20x in futures & options markets), available in these markets, could inflict tremendous losses on unsuspecting retail traders in a matter of minutes. Liquidity, even in normal times, is heavily dependent on retail participation.
The Securities and Exchange Board of India (SEBI) is trying to temper retail participation in conventional derivative contracts. However, PF contracts in cryptocurrencies are even more higher risk instruments for the reasons stated in this article. It is of concern that not enough regulatory focus is brought to bear on these unregulated but more complex derivative contracts that retail participants are being exposed to. It is estimated that there were almost 2 Cr crypto traders and investors in India as of 2023. Along with the number of traders, the volume of transactions is also high and rising with the total value of transactions exceeding Rs. 50,000 Cr in 2024-25. The Government of India and SEBI should take note of the large and growing crypto investor base and come up with appropriate regulatory frameworks to protect the interests of the retail investors/traders while allowing the orderly development of the market.
1. The rise of Crypto Futures in India: Leverage, tax efficiency and market maturity, Avinash Shekhar of Pi42 explains, Economic Times, Mar 25, 2025
2. Ibid and Crypto Futures & Options in India: How to report ITR?, Rajput Jain & Associates.
3. The rise of Crypto Futures in India: Leverage, tax efficiency and market maturity, Avinash Shekhar of Pi42 explains, Economic Times, Mar 25, 2025
4. Shiller, Robert J, 1993. "Measuring Asset Values for Cash Settlement in Derivative Markets: Hedonic Repeated Measures Indices and Perpetual Futures", Journal of Finance, American Finance Association, vol. 48(3), pages 911–931, July.
5. Understanding Perpetual Futures: A Guide for Cryptocurrency Traders, Investopedia, Sept 20, 2025.
6. Funding Fees Explained: The Hidden Cost of Trading Crypto Perpetual Futures, Chain Affairs, Dec 16, 2025.
7. A detailed Guide on Automated Market Maker, Medium, Sept 16, 2024.
8. Ibid
9. Ibid
10. For instance, Crypto Perpetual Futures on CoinSwitch PRO: Comprehensive Trading Guide, CoinSwitch, Feb 14, 2025, also substantiated during conversations with market participants
11. Based on conversations with market participants.
12. Best crypto futures platforms in India (2025 edition), Economic Times, Jul 31, 2025.
13. Based on conversations with market participants.
14. India has over 19 million crypto investors with 75% youth: Report, Business Standard, Feb 22, 2026.
15. Crypto transactions in India crossed ₹51,000 crore in 2024–25, tax collection data shows, The Hindu, Dec 8, 2025.