They are both correct but with a subtle difference.
"Övningar i tyska" means your doing exercises about the German language.
"Övningar på tyska" just means the exercises are in German. The subject of the exercises could be anything, math, biology etc. It just means you are doing it in the German language.
Hope this sorts things out. :)
As in "an exercise in futility" (...which in my case is strangely fitting as I never had the intestinal fortitude to learn German beyond the level of embarrasingly intermediate...)