Keeping crypto on regulated exchanges like CoinDCX or Kraken India offers automatic tax reporting and TDS handling. The tradeoff: exchange can be hacked or fail. Regulatory framework requires exchanges to maintain segregated accounts, but enforcement is ongoing.
Hardware wallets (Ledger, Trezor) offer maximum security but require you to manually track transactions for Schedule VDA filing. Transfer between wallets still triggers 30% TDS, so self-custody doesn't eliminate tax friction.
Whether you hold on exchange or self-custody, capital gains tax applies, Schedule VDA reporting is mandatory, and 30% TDS triggers on transfers. The location of your crypto doesn't change your tax liability in India.
Use exchange custody for active trading (easier reporting), cold storage for long-term holdings. Maintain records in both cases. For amounts over INR 50 lakh, consider splitting between exchange and self-custody to reduce single-point-of-failure risk.
Income Tax Department now actively tracks crypto transactions via exchange data sharing. Non-disclosure of holdings or gains on Schedule VDA can trigger assessments. Compliance is increasingly automated and enforced.
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