Crypto Currency: Investing in cryptocurrencies is legal in India, but it is very important to understand some important rules and precautions for this. Cryptocurrency has not yet got the status of legal tender i.e. official currency in India. This means that you cannot buy goods in shops or online with it. However, it is completely legal to buy, sell and hold it as a digital asset. In this article, we will discuss the ways to invest in cryptocurrency, necessary documents, tax rules and precautions.
How to buy cryptocurrencyTo start investing in cryptocurrency, first of all you have to choose a trusted crypto exchange. Platforms like CoinDCX, WazirX and ZebPay are quite popular in India. Apart from this, international exchanges like Binance and Kraken also provide trading facility in INR to Indian users.
Keep the following things in mind while choosing an exchange:Security: Does the platform use security measures like two-factor authentication (2FA) and cold storage?Past record: How is the history and reliability of the exchange? Has it been a victim of any hacking or fraud before?User experience: The interface of the app or website should be easy to use and transparent.Documents required to buy cryptocurrencyOpening an account on a crypto exchange requires completing the KYC (Know Your Customer) process. For this, you have to submit the following documents:Aadhaar card: For identity verification.PAN card: For tax-related information.Bank details: For fund transfer.After KYC verification, you can deposit rupees in the exchange wallet through your bank account or UPI. After this, you can buy cryptocurrencies in the following ways:Market order: Instant purchase at the current market price.Limit order: Purchase at a price you set.Important steps before investing in cryptocurrencyInvesting in cryptocurrency can be risky, so it is important to pay attention to the following things before investing:Research: Do a thorough study of the technology, development team, utility and market trends of the cryptocurrency you want to invest in. Get information from reliable sources like CoinMarketCap, CoinGecko or the official website of the project.
Wallet selection: Digital wallets are used to store cryptocurrencies. There are two types:- Hot wallets: Internet-connected wallets, such as exchange wallets or software wallets (e.g. MetaMask). These are convenient but less secure.
- Cold wallets: Hardware devices such as Ledger or Trezor, which remain offline and are considered more secure. Cold wallets are recommended for long-term investments.
- Risk management: Cryptocurrency prices are very volatile. Therefore, invest only as much money as you can afford to lose.
Tax rules on cryptocurrency in India- Tax rules on income from cryptocurrency in India are applicable from 1 April 2022. These rules are as follows:
- 30% tax: 30% capital gains tax is levied on profits from the sale of cryptocurrencies. No slabs or exemptions apply.
- 1% TDS: 1% Tax Deduction at Source (TDS) is applicable on transactions above Rs 50,000. This amount is linked to your PAN card.
- Information in ITR: It is mandatory to show the income from crypto correctly in your Income Tax Return (ITR). For this you have to use "Schedule VDA" (Virtual Digital Assets).
- Not following tax rules can lead to legal troubles, so it is better to consult a chartered accountant.
Precautions for investment- Take the following precautions while investing in cryptocurrency:
- Avoid scams: Beware of promises like "getting rich overnight". Check the authenticity of any scheme before investing in it.
- Password and private key: Keep your wallet's private key and password safe. Never share them with anyone.
- Investment amount: Invest according to your financial situation. Volatility in the crypto market can also lead to big losses.
Latest Updates: Keep an eye on crypto regulations and market trends, as regulations related to cryptocurrency in India may change from time to time.