If you are creating Vector data, then it's best to keep the data in a geographic coordinate System with WGS84 as the datum.
With today's technology, there is no specific advantage to keep your vector data in a custom projection. 6 decimal points are enough to have meter level accuracy, and you aren't going to need any more. Projection on demand is fast enough in today's world; And you have the advantage of being compatible with most global sources like Satellite Imagery and GPS devices etc.
You shouldn't use a UTM zone, since India is covered by several zones, and big states like AP & MP themselves are covered by several UTM zones.
If you are dealing with any Governemt body, do note that you need to follow the NNRMS standards given in the NNRMS document. While the document clearly states (page 47 section 66.4) that you should store the data in Geographic Coordinate system, all government organizations that I have worked with, store even the vector data in the national or state projections.
If you are digitizing from SOI TopoSheets, It is even more complicated. Firstly, many experts believe that it is not legal to scan and digitize SOI TopoSheets. Secondly these toposheets are in a poly-conic projection, based on the Everest Spheroid & Modified Everest Datum. The coordinates on these maps are shifted quite a bit when compared to coordinates in the WGS84 datum. Hence you need to take care of this datum transformation.