'Lower taxes, extreme leverage': Nithin Kamath stunned by how big India’s crypto futures got

Zerodha co-founder Nithin Kamath has raised a red flag over the booming, loosely regulated world of crypto futures and options in India, calling attention to extreme leverage and tax arbitrage fueling the surge.

Indian crypto exchanges are witnessing a sharp pivot toward futures trading, with volumes now exceeding spot trades by as much as threefold, according to industry sources. Unlike spot deals, crypto derivatives in India operate in a regulatory grey zone, allowing traders to sidestep the 1% tax deducted at source (TDS) and even avoid the steep 30% tax on profits from virtual digital assets (VDAs).

Kamath, in a LinkedIn post, noted, “I hadn’t realised how popular crypto F&O has become,” pointing to the mix of high leverage and low taxes as major draws.

Futures, by nature, are high-risk bets that require only a fraction of the trade value as margin. While Indian stock futures typically offer 3-5x leverage, crypto futures can soar past 50x, with some global exchanges offering up to 100x. 

In India, the added twist is that traders can post margins in Indian rupees, which platforms then convert to stablecoins like USDT to execute global trades via exchanges such as Binance.

“There is no transfer of VDA involved in a futures transaction,” Purushottam Anand, founder of Crypto Legal, was quoted as saying in a report by the Economic Times. As a result, Section 194S of the Income Tax Act, which mandates TDS on crypto sales, does not apply.

Instead of a flat 30% tax, gains from futures are often declared as "income from other sources" and taxed according to income slabs. This loophole allows some traders to route gains through low-income family members to minimize their tax burden.

Despite the booming volumes, Indian crypto exchanges remain unregulated and opaque, with no obligation to disclose trading data. The Central Board of Direct Taxes has begun probing the sector, seeking clarity on crypto derivatives and the broader definition of VDAs—possibly a precursor to tighter regulation.