Bitcoin is still a confusing idea for many people, but its surging value through the last few months has gotten everyone paying attention again. The value of Bitcoin soared as high as $40,000 (roughly Rs. 29.2 lakhs). However it still remains volatile, and on January 11, we saw Bitcoin sliding 26 percent in its biggest plunge since March 2020. Although Bitcoin can seem like a great investment, it’s important to do your research before you take the plunge. Experienced investors who know what they’re doing won’t need to be told this, but for beginners, it can be quite risky.
It is necessary that you find the right places to make this investment and understand the legal and tax implications regarding investing in Bitcoin, before you start investing. We can’t give you legal advice but here’s what we’ve been able to learn, to get you started in Bitcoin.
How Can I Buy Bitcoins in India?
In India, you can buy Bitcoin from several online exchanges like BuyUCoin, Coinshare, Unocoin etc. Unocoin is an Indian-based exchange. Online exchanges like these will allow you to buy, sell, and hold Bitcoins. You can also do person to person Bitcoin trading using LocalBitcoins — it uses escrow protection to keep the transaction secure.
It is generally better to use an exchange that allows its users to also withdraw their Bitcoins to their own personal wallet for safe keeping — there are exchanges that do not allow for this.
And it goes without saying, but let’s say it anyway — when creating an account on online exchanges, it is important to use safe Internet practices like using two-factor authentication and unique and strong password.
Most Indian exchanges also have a KYC (Know Your Customer) requirement. This process involves verifying your identity using your government-issued ID cards like an address proof, PAN card, and your bank account details.
Once you place an order, you can purchase Bitcoin using digital payment methods. Money from your bank accounts can be transferred using NEFT, RTGS, debit or credit card. One Bitcoin is valued at $35,563 (roughly Rs. 26 lakhs) as of today, but you don’t need to buy a whole coin to start your Bitcoin investment. You can start your Bitcoin investment by chipping in as low as Rs. 500.
Is it legal to buy Bitcoins in India?
In 2018, the RBI barred regulated entities (such as banks) from dealing with Bitcoin. This threw the market into a tailspin. Later in the year, the Supreme Court also backed this decision. However, last year, the SC overturned the ban. While holding Bitcoin was never made illegal, the SC decision means that companies in this space can do business more easily.
Online tax service Cleartax also noted that there are no rules, regulations, or guideline in places for resolving disputes that could arise while dealing with Bitcoins. This amplifies the risk factor while dealing with the cryptocurrency in India. However, it is legal to buy and sell Bitcoin in India.
How do I ensure that my Bitcoin is stored safely?
After buying Bitcoins, you have to ensure that you store it safely. These are typically stored in Bitcoin wallets — which can be offline storage like a USB drive, called cold wallets, but there are also online wallets you can use including, most recently, PayPal, which are called hot wallets.
Even Bitcoin wallets have faced multiple hacks in the past, which is why many people prefer to keep at least part of their investment in a cold wallet.
What are the taxes I should be concerned about if I own Bitcoins?
There is still a lack of clarity on the tax front on Bitcoin investment in India. According to CoinDesk, a digital currency news site, India-based investors may soon have to pay taxes on returns earned from Bitcoin investments.
With the soaring value of Bitcoins, income for selling Bitcoin is taxed at 30 percent tax on cryptocurrency gains for short term investments around 20 percent for long-term investments. However, as long as you don’t sell the Bitcoin, you don’t have to pay money simply because its value went up.