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India's 1st Crypto-INR Perpetual Futures Trading Platform

Pi42 Blog

India's 1st Crypto-INR Perpetual Futures Trading Platform

Crypto Taxes: How INR-Margin Futures Help You Save Big

The Indian crypto landscape is changing, and with it, how traders can legally and efficiently reduce their tax burden. Could you name one of the most underrated tools in this space? INR-margined crypto futures. In this blog, we’ll break down the core difference between spot and futures trading, explain how crypto futures aren’t taxed like Virtual Digital Assets (VDAs), and show how INR-margin futures offer a smarter, more tax-efficient way to trade.


Understanding Crypto Taxes in India

In 2022, the Indian government introduced a specific tax regime for virtual digital assets (VDAs), which include cryptocurrencies and non-fungible tokens (NFTs), under Section 115BBH of the Income Tax Act. Here’s a quick overview of the key tax rules for VDAs:

  • 30% Flat Tax on Profits: Any gains from the transfer of VDAs (e.g., selling crypto for INR, trading one crypto for another, or spending crypto) are taxed at a flat 30% rate, plus a 4% cess, regardless of whether the gains are short-term or long-term. No deductions are allowed except for the cost of acquisition, and losses cannot be set off against other income or carried forward.
  • 1% TDS on Transactions: A 1% Tax Deducted at Source (TDS) applies to VDA transfers exceeding INR 50,000 (or INR 10,000 in certain cases) in a financial year. Both buyers and sellers in crypto-to-crypto trades must deduct this TDS on the total transaction value, not just the profit.

These rules apply to spot trading, where you buy, sell, or exchange actual cryptocurrencies. But what about futures trading, particularly INR-margin futures? Let’s explore why this trading method could be a game-changer for tax-savvy traders.


Spot Trading vs. Futures Trading

Spot Trading: Taxed as VDA

Spot trading involves the direct purchase, sale, or exchange of cryptocurrencies, resulting in the actual transfer of ownership. In India, spot trades are classified as VDA transactions, which subjects them to:

  • 30% Tax on Gains: Any profit from selling crypto for INR, trading crypto for another crypto (including stablecoins like USDT), or using crypto to buy goods or services is taxed at 30% plus a 4% cess. Example:
    If you buy 1 Bitcoin for INR 40 lakh and sell it for INR 50 lakh, your profit of INR 10 lakh is taxed at 30% (INR 3 lakh) plus 4% cess (INR 12,000), totaling INR 3.12 lakh in taxes.
  • 1% TDS: If the transaction value exceeds INR 50,000, a 1% TDS is deducted from the sale amount. In the above example, selling 1 Bitcoin for INR 50 lakh would trigger a 1% TDS of INR 50,000, which is claimable when filing your ITR.

Futures Trading: Outside VDA Tax Scope

Futures trading, particularly INR-margin futures, operates differently. In futures trading, you’re not buying or selling the underlying cryptocurrency; instead, you’re speculating on its future price through derivative contracts. This distinction is critical for tax purposes:

  • No VDA Classification: According to some legal interpretations, crypto futures contracts may not qualify as VDAs as they do not involve the generation or transfer of a digital asset. Instead, futures contracts are agreements to settle price differences, without transferring ownership of the underlying crypto. As a result, gains from futures trading are typically classified as business income rather than VDA income.
  • Taxed at Slab Rates: Unlike the flat 30% VDA tax, futures trading profits are taxed as business income according to your individual income tax slab rate. This method can result in significant tax savings compared to the 30% VDA tax.
  • No 1% TDS: Since futures contracts do not involve the transfer of VDAs, the 1% TDS does not apply to INR-margin futures trades. This eliminates the upfront tax deduction that spot traders face on transactions exceeding INR 50,000.

INR-Margin Futures

Most crypto futures markets require traders to convert INR to stablecoins like USDT to participate, as trading pairs are typically crypto/USDT. This conversion can complicate tax calculations, as converting USDT back to INR may trigger additional taxable events. However, INR-margin futures allow you to trade directly in INR, bypassing the stablecoin loop entirely. This approach offers several benefits:

  • Simplified Tax Reporting: By trading directly in INR, you avoid the need to track conversions between INR and stablecoins, which can involve multiple taxable events. Your profits are calculated directly in INR, making it easier to compute and report your tax liability.
  • No Stablecoin Tax Complications: Converting INR to USDT and back can trigger VDA tax rules if profits are realized during conversion. With INR-margin futures, you eliminate this layer of complexity, as all transactions are settled in INR.
  • Cost Efficiency: Trading directly in INR reduces transaction costs associated with stablecoin conversions, which often involve exchange fees and slippage. The result maximizes your net returns before taxes.

Conclusion

If you’re trading crypto in India and want to optimize your tax efficiency, INR-margined crypto futures on compliant Indian exchanges provide a smart alternative to spot trading. With simplified reporting, potentially lower taxes, and no 1% TDS, this method is becoming an essential tool for every serious trader.

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Crypto Taxes: How INR-Margin Futures Help You Save Big
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