To invest in cryptocurrency in India, open an account on an exchange registered with the Financial Intelligence Unit (FIU-IND), complete KYC with your PAN and a second ID, link a bank account in your own name, transfer rupees by UPI or IMPS, and place a buy order on a pair like BTC/INR or ETH/INR. The cost side matters as much as the mechanics: gains are taxed at a flat 30% plus a 4% cess (an effective 31.2%), and every sale above the threshold carries a 1% tax deducted at source.
Documents You Need Before You Start
Missing paperwork is the most common reason a first application stalls at verification. Get these ready first:
- A Permanent Account Number (PAN). This ten-digit code from the Income Tax Department is mandatory for opening any exchange account. If you don’t have one, apply through NSDL or UTIITSL. The online paperless route costs around ₹101, or roughly ₹107 if you submit documents physically.
- A second identity document. Exchanges now ask for one on top of PAN — Aadhaar, passport, or voter ID. After the FIU tightened KYC norms in 2025, platforms may also require a live selfie and geo-tagging during onboarding.
- A bank account in your own name. Savings or current is fine. You’ll need the account number and IFSC to link it for rupee deposits and withdrawals. Third-party transfers are not allowed.
- An active mobile number and email. OTP verification for both is standard. If you plan to verify via Aadhaar, make sure the mobile number linked to it is active.
Enter your name exactly as it appears on your PAN, including middle names and initials. Even small mismatches in spelling or word order get applications rejected.
Picking an FIU-Registered Exchange
Only use a platform that is registered with FIU-IND as a reporting entity under the Prevention of Money Laundering Act.1FIU India. AML and CFT Guidelines for Reporting Entities Providing Services Related to Virtual Digital Assets As of March 2025, 49 Virtual Digital Asset Service Providers held this registration, with the vast majority based in India and only four offshore. Well-known FIU-registered platforms include CoinDCX, WazirX, ZebPay, CoinSwitch, Mudrex, and Unocoin. If a platform isn’t on the FIU registry, assume it’s operating outside India’s legal framework.2Press Information Bureau. Financial Intelligence Unit Issues Notices for Non-Compliance to Offshore Virtual Digital Assets Service Providers
Trading fees on Indian exchanges are generally low: maker/taker fees typically fall between 0.03% and 0.07% per transaction, and most platforms let you start with as little as ₹100. Look beyond the headline fee. Check the trading pairs on offer, the quality of the mobile app, withdrawal processing times, and whether customer support actually responds. Some exchanges impose a cooling-off period of 24 hours or more when you add a new withdrawal address; that’s a security feature, but worth knowing before you need to move funds in a hurry.
Buying Cryptocurrency Step by Step
Secure the Account First
As soon as KYC clears, turn on two-factor authentication. Most platforms support authenticator apps such as Google Authenticator, which generate a rolling six-digit code for logins and transactions. Prefer the authenticator option over SMS-based 2FA where both are offered, because SIM-swap fraud is a real risk.
Deposit Rupees
Open the deposit section, select Indian Rupee, and choose UPI or IMPS. Both settle within seconds. The exchange gives you a virtual account number or a unique UPI ID; use that as the destination in your bank app. Check the identifier carefully before confirming, because rupee deposits sent to the wrong destination can be difficult to recover.
Place the Trade
Once the rupee balance shows up, pick a trading pair. BTC/INR and ETH/INR are the most popular on Indian exchanges, but most platforms list dozens of tokens. Enter either the rupee amount you want to spend or the quantity of the token you want to buy. A market order executes at the current price; a limit order waits until the market hits your chosen price. For a first purchase, a market order is simpler. The trade fills within seconds and the tokens appear in your exchange wallet.
Holding It: Exchange Wallet or Your Own
When you buy on an exchange, the platform holds the tokens for you. That’s exchange custody, and for most beginners it’s fine. You can trade, hold, and withdraw without managing private keys. The tradeoff is counterparty risk: if the exchange is hacked, goes bankrupt, or freezes withdrawals, your assets are stuck.
Self-custody means moving your tokens to a personal wallet where you control the private keys. Hardware wallets, which store keys on a physical device offline, offer the strongest security. Software wallets on a phone are more convenient but more exposed. The catch with either: lose the private key or seed phrase and the crypto is gone, with no support line to call. If you’re new, start with exchange custody and move to self-custody only after you understand seed phrase backup, wallet recovery, and the irreversibility of blockchain transactions.
The 30% Tax on Your Gains
Section 115BBH of the Income Tax Act imposes a flat 30% tax on income from transferring a virtual digital asset.3Indian Kanoon. Section 115BBH in the Income Tax Act, 1961 Add the 4% health and education cess and the effective rate is 31.2%. Surcharges push it higher at upper income levels.
Two rules under this section catch new investors off guard:
- No deductions beyond cost. The only expense you can subtract from your sale proceeds is what you originally paid for the token. Infrastructure costs, trading fees, advisory fees, and transfer charges are not deductible.3Indian Kanoon. Section 115BBH in the Income Tax Act, 1961
- No loss set-off. A loss on one token cannot reduce the taxable gain on another. Each profitable trade is taxed on its own. VDA losses can’t be carried forward to future years or offset against salary, business income, or any other head.3Indian Kanoon. Section 115BBH in the Income Tax Act, 1961
The practical effect: make ₹1,00,000 profit on Bitcoin and lose ₹80,000 on an altcoin in the same year, and you still owe 31.2% on the full ₹1,00,000. The loss buys you nothing. Factor this in before you start actively rotating between multiple tokens.
The 1% TDS on Every Sale
Section 194S requires a 1% tax deducted at source whenever you sell or transfer a virtual digital asset. On an exchange, the platform handles this automatically, taking 1% of the transaction value before crediting your account. The annual threshold is ₹50,000 for specified persons (broadly, individuals and Hindu Undivided Families whose transactions run through an exchange) and ₹10,000 for others.
TDS isn’t an extra tax; it’s an advance credited against your total liability when you file your return. But if you trade often, that 1% on every sale ties up capital across the year. Track your Form 26AS or Annual Information Statement — every TDS deduction is recorded there, and you’ll want the numbers to reconcile at filing time.
Penalties for TDS non-compliance are serious. Failing to deduct or deposit TDS can carry a penalty equal to the unpaid amount, and intentional non-payment can lead to imprisonment of up to six months. Late payment attracts interest at 15% per annum. On exchange trades the deduction happens automatically, so this mostly becomes an issue in peer-to-peer transfers, where the buyer is responsible for deducting and depositing the tax.
Mining, Staking, Airdrops, and Gifts
Tokens received through mining, staking rewards, or airdrops face a two-stage tax. On the day you receive them, their fair market value is taxed as income from other sources at your slab rate. When you later sell, the 30% VDA tax applies to any gain above that already-taxed value, which becomes your cost of acquisition. Hard forks follow the same pattern: the value of the new tokens on receipt is slab-rate income, and any later profit is taxed at 30%. The record-keeping burden is real — you need the fair market value on the exact date of receipt, even for small airdrop amounts.
Crypto received as a gift from a non-relative is taxable in the recipient’s hands under Section 56(2)(x) if the aggregate value in a financial year exceeds ₹50,000, using the fair market value on the date of receipt. Gifts from specified relatives — parents, siblings, children, grandparents, grandchildren, and parents-in-law — are fully exempt regardless of value. So are gifts received on the occasion of marriage.
Reporting Crypto in Your Tax Return
The Income Tax Department added Schedule VDA to ITR-2 and ITR-3 for reporting virtual digital asset income.4Income Tax Department. ITR-2 FAQ – How to Disclose VDA Income in ITR Form You report each transaction individually: date of acquisition, date of transfer, cost, and sale consideration.5Income Tax Department. File ITR-2 Online User Manual – Schedule VDA Income taxed at the flat 30% rate sits under capital gains in Schedule VDA; tokens taxed at slab rates on receipt (mining, airdrops) go under income from other sources.
If you traded actively, the filing is tedious but not optional. Most exchanges let you download a full transaction history as a CSV. Several tax-filing platforms now offer crypto-specific tools that import exchange data and populate Schedule VDA automatically, with service tiers priced roughly from ₹1,800 to ₹6,000. Whether you use a tool or a chartered accountant, start keeping a clean log — every buy, sell, swap, and transfer, with dates and rupee values — from your first trade rather than trying to reconstruct it at year-end. The government cross-references returns against data reported by FIU-registered exchanges, so underreporting is increasingly easy to catch. Unpaid taxes accrue interest, and deliberate evasion can lead to prosecution.
Foreign Exchanges and What Happens to Your Crypto Later
Foreign platforms sit outside the safe zone for most Indian residents. As of March 2025, only four offshore crypto platforms had registered with FIU-IND, and the unit has already issued non-compliance notices to 25 offshore providers operating in India without registration.2Press Information Bureau. Financial Intelligence Unit Issues Notices for Non-Compliance to Offshore Virtual Digital Assets Service Providers Beyond PMLA exposure, the Foreign Exchange Management Act (FEMA) regulates cross-border capital flows, and using crypto to effectively move money outside India — for instance, funding a foreign entity — can trigger FEMA penalties. If you hold tokens on a foreign platform from before the rules tightened, talk to a tax professional about your reporting obligations before your next filing.
One planning point most investors don’t think about until too late: crypto is now recognized as inheritable property in India following a Madras High Court ruling classifying it as property under succession laws. Inheritance itself isn’t a taxable event, but any gains heirs realize on eventual sale are taxed at 30% plus cess. The bigger risk is access. If your heirs don’t have exchange logins, wallet passwords, or seed phrases, the crypto is legally theirs but effectively unreachable. Document exchange accounts and wallet recovery details in a way an executor can safely find them.