How Correct Tax Treatment of Crypto Perpetual Futures Can Reduce Tax Liability in India
Crypto exchanges increasingly offer perpetual derivative contracts such as BTCUSDT, ETHUSDT and SOLUSDT, as well as equivalent contracts settled in USDC. These products allow traders to take positions on the price movement of Bitcoin, Ethereum, Solana and other crypto-assets without purchasing or receiving delivery of the underlying cryptocurrency.
In this article, I have discussed the practical applicability, tax classification, turnover calculation, INR conversion methodology, treatment of trading expenses and key precautions relating to crypto perpetual futures. In case you have any doubt after reading this article, or if you feel that any practical aspect requires further discussion, you may contact me at the contact details mentioned at the end of this article.
The taxation of such transactions requires a clear distinction between:
- an actual transfer of a Virtual Digital Asset;
- a derivative contract merely linked to the price of a Virtual Digital Asset; and
- a separate transfer or utilisation of the stablecoin received or paid in settlement.
This distinction is important because income from the transfer of a Virtual Digital Asset is governed by section 115BBH, whereas a non-delivery derivative transaction may fall within speculative business under sections 43(5) and 73 of the Income-tax Act, 1961.
1. Nature of Stablecoin-Settled Perpetual Contracts
A typical BTCUSDT, ETHUSDT, SOLUSDT or corresponding USDC-settled perpetual contract has the following features:
- Bitcoin, Ethereum, Solana or another cryptocurrency is only the reference asset;
- the contract ordinarily has no fixed expiry date;
- margin is maintained in USDT or USDC;
- profit or loss is calculated and settled in the relevant stablecoin;
- trading fees and funding adjustments are charged or credited in that stablecoin; and
- the trader does not ordinarily receive delivery of the underlying cryptocurrency.
In such contract symbols:
- BTC, ETH or SOL represents the underlying or reference crypto-asset; and
- USDT or USDC represents the quote, margin and settlement asset.
The economic result is therefore the settlement of a price difference rather than the actual purchase and sale of the underlying cryptocurrency.
This distinction is fundamental because section 115BBH applies where income arises from the transfer of a Virtual Digital Asset.
2. Possible Tax Positions
A. Taxation under Section 115BBH
A conservative view may treat crypto perpetual derivative income as income from a Virtual Digital Asset because the contract is linked to BTC, ETH, SOL or another cryptocurrency and is settled in USDT or USDC.
Under this approach:
- profitable transactions are taxable at 30%, plus applicable surcharge and health and education cess;
- expenditure other than cost of acquisition is generally not deductible;
- losses from one VDA transaction cannot be adjusted against profit from another VDA transaction;
- VDA losses cannot be set off against any other income; and
- such losses cannot be carried forward.
However, this treatment assumes that the perpetual derivative transaction itself amounts to a transfer of a VDA.
In a non-delivery perpetual contract, the trader neither acquires nor transfers the underlying BTC, ETH, SOL or other reference crypto-asset. Only the contract-price difference is settled.
Therefore, applying section 115BBH directly to the derivative result may not be the most appropriate interpretation.
B. Speculative Business under Section 43(5)
Section 43(5) covers contracts for the purchase or sale of commodities, stocks or shares that are settled otherwise than by actual delivery.
Eligible derivative transactions are excluded from speculative treatment only where the prescribed statutory conditions are satisfied, including execution on a recognised stock exchange.
A crypto perpetual contract traded on an overseas or unrecognised crypto exchange would ordinarily not satisfy the recognised-stock-exchange exclusion.
Accordingly, where:
- no underlying cryptocurrency is delivered;
- only the price difference is settled;
- the contract is executed outside a qualifying recognised stock exchange; and
- the derivative contract itself is not transferred as a crypto-token,
the resulting profit or loss may be more appropriately treated as speculative business income or loss.
3. Preferred Legal Position
The more legally supportable position is:
Profit or loss from stablecoin-settled perpetual contracts referencing BTC, ETH, SOL or another crypto-asset should ordinarily be treated as speculative business under sections 43(5) and 73, rather than income from transfer of the underlying cryptocurrency under section 115BBH.
The underlying cryptocurrency merely acts as the reference asset for determining the value of the derivative contract.
Merely referring to the price of a VDA does not necessarily amount to transferring that VDA.
This position should be supported by the exchange’s product specifications showing that:
- the contract is non-delivery based;
- settlement takes place only through price differences;
- the underlying crypto-asset is not delivered; and
- the settlement asset is USDT, USDC or another specified stablecoin.
As the Income-tax Act does not expressly deal with cryptocurrency perpetual futures, the position remains interpretative and should be properly documented.
4. How Speculative Treatment Can Reduce Tax Liability
The classification of the transaction has a direct impact on the tax payable by the assessee.
A comparison is given below:
| Particular | Section 115BBH treatment | Speculative-business treatment |
| Tax rate on profit | 30% plus surcharge and cess | Normal rate applicable to the assessee |
| Trading fees | Generally not separately deductible | Ordinarily deductible, subject to section 37(1) |
| Funding and liquidation charges | Deduction generally restricted | May be considered as business expenditure |
| Set-off of losses | Not permitted | Allowed only against speculative-business profit |
| Carry-forward of loss | Not permitted | Up to four assessment years, subject to conditions |
Therefore, where the transaction is genuinely a non-delivery derivative contract, its correct classification as speculative business may:
- prevent application of the flat 30% VDA tax rate;
- permit deduction of genuine trading-related expenses;
- allow adjustment against other speculative profits; and
- preserve the right to carry forward eligible speculative losses.
This does not mean that every crypto transaction can be treated as speculative business. The benefit is available only where the legal and contractual nature of the transaction supports such treatment.
5. Tax Consequences of Speculative-Business Treatment
Taxability of profit
Profit from such derivative transactions is assessable under the head:
Profits and gains of business or profession
It is ordinarily taxable at the normal rate applicable to the assessee.
The special 30% rate under section 115BBH should not apply to the derivative result where there is no transfer of the underlying cryptocurrency.
Treatment of loss
Under section 73, a speculation-business loss:
- can be adjusted only against profit from another speculative business;
- cannot be adjusted against normal business income;
- cannot be adjusted against salary, house-property income, capital gains or income from other sources; and
- may be carried forward for four assessment years, subject to compliance with the return-filing requirements.
The return should be filed within the prescribed due date to preserve the right to carry forward the loss.
6. Treatment of Trading Fees, Liquidation Charges and Funding
Under speculative-business treatment, expenses directly connected with the derivative activity may ordinarily be considered as business expenditure, subject to verification and the general conditions of section 37(1).
The usual treatment is:
| Particular | Treatment |
| Opening execution fee | Business expenditure |
| Closing execution fee | Business expenditure |
| Liquidation charge | Business expenditure, subject to its nature |
| Funding payment | Business expenditure |
| Funding receipt | Business income or reduction of funding expenditure |
| Contract-price difference | Speculative profit or loss |
Avoiding double deduction
Exchange statements commonly report a realised P&L figure that already includes:
- opening fees;
- closing fees;
- funding payments or receipts; and
- liquidation-related charges.
Where the exchange-reported net realised P&L is used, these charges should not be deducted again.
The proper reconciliation is:
Net realised P&L = Gross contract-price P&L − fees − funding payments + funding receipts
Fees may be added back only for reconstructing the gross contract-price result. Such an add-back does not mean that the fees are treated as income.
7. Computation of Speculative Turnover
Turnover in non-delivery speculative or derivative transactions is not based on the total notional value of the contracts.
It is computed by aggregating:
- all favourable differences; and
- all unfavourable differences taken at their absolute value.
Therefore:
Speculative turnover = Favourable differences + Absolute unfavourable differences
Execution fees, funding charges, liquidation charges and the notional value of the underlying crypto-asset are not included in turnover.
Illustration
Suppose there are two transactions:
| Transaction | Result |
| Transaction A | Profit ₹10,000 |
| Transaction B | Loss ₹7,000 |
The turnover will be:
₹10,000 + ₹7,000 = ₹17,000
The net trading result will be:
₹10,000 − ₹7,000 = ₹3,000 profit
Thus, turnover and net profit are separate figures.
The loss-making difference remains a loss in the profit and loss account, but its absolute value is included while determining turnover.
8. Conversion of Stablecoin into Indian Rupees
The exchange statement records the derivative result in USDT, USDC or another settlement stablecoin, whereas the Indian income-tax return must be prepared in Indian rupees.
USDT and USDC are crypto-tokens and should not automatically be treated as equivalent to the US dollar.
Therefore, the SBI telegraphic-transfer buying rate prescribed under Rule 115 for recognised foreign currencies is not directly applicable to such stablecoins.
A reasonable, consistent and verifiable stablecoin-INR valuation method should be followed.
The preferred order of evidence is:
1. actual INR value shown by the exchange;
2. actual stablecoin-INR transaction rate;
3. historical stablecoin-INR market price from a reliable source; or
4. a supportable stablecoin-USD and USD-INR cross-rate.
The same valuation method should be applied consistently to:
- profits;
- losses;
- opening and closing fees;
- funding payments;
- funding receipts; and
- liquidation charges.
A direct historical USDT-INR or USDC-INR daily rate may be used as a practical method where transaction-specific INR values are not available.
9. Date of Conversion
For a precise computation, each item should be converted into INR on the date on which it arises.
| Component | Relevant conversion date |
| Derivative profit or loss | Contract closure or settlement date |
| Opening fee | Date on which the fee is debited |
| Closing fee | Closing or settlement date |
| Funding payment | Date of funding debit |
| Funding receipt | Date of funding credit |
| Liquidation charge | Liquidation date |
Where opening and funding dates cannot be reliably matched, the exchange-reported net realised P&L may be converted using the relevant stablecoin-INR rate applicable on the closure date.
Under this simplified method, fees and funding should not be deducted separately because they are already included in the net realised P&L.
The detailed component method and simplified net-realised-P&L method should not be combined, as that may result in double deduction of expenses.
10. Separate Treatment of Actual Crypto Transfers
The derivative contract and the transfer of the settlement stablecoin are separate tax issues.
Even where the perpetual derivative result is treated as speculative business, an actual transfer of USDT, USDC or another crypto-asset may independently fall within the VDA provisions.
Separate examination is required for:
- sale of USDT or USDC for INR;
- conversion of a settlement stablecoin into another crypto-token;
- use of USDT or USDC to purchase BTC, ETH, SOL or another VDA;
- sale of spot cryptocurrency holdings;
- transfer of crypto-assets to another person; and
- exchange of one crypto-asset for another.
Accordingly:
The derivative profit or loss may be treated as speculative business, while an actual transfer of USDT, USDC or another crypto-asset may separately be taxable under section 115BBH.
A derivative loss cannot automatically be adjusted against taxable income arising from a separate VDA transfer.
Conclusion
Stablecoin-settled perpetual contracts are materially different from ordinary spot cryptocurrency transactions.
Where:
- BTC, ETH, SOL or another cryptocurrency is merely the reference asset;
- no delivery of the underlying cryptocurrency takes place;
- only the contract-price difference is settled;
- the result is settled in USDT, USDC or another stablecoin; and
- the platform does not qualify for the recognised-stock-exchange derivative exclusion,
the more supportable position is to treat the resulting profit or loss as speculative business under sections 43(5) and 73.
Under this treatment:
- profit is taxable at the normal applicable rate;
- loss can be adjusted only against speculative profit;
- unabsorbed loss may be carried forward for four assessment years;
- turnover consists of favourable and absolute unfavourable differences;
- genuine trading and funding expenses may be considered separately;
- stablecoin amounts are converted into INR using a consistent and supportable valuation method; and
- actual transfers of USDT, USDC or other crypto-assets are separately examined under section 115BBH.
Correct classification may therefore result in a substantially lower and more legally appropriate tax burden than automatically treating every crypto-linked transaction as taxable at 30% under section 115BBH.
However, the benefit depends entirely on the contractual nature of the transaction. Since the Act does not specifically prescribe the treatment of crypto perpetual derivatives, the adopted position should be supported by complete exchange records, product specifications, transaction-wise computations and a reasoned legal note.
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