Time to Shift Funds from Crypto to Mutual Funds or Stocks Before March 31st?

We talked to some financial experts to find out what small investors should do now when investing in crypto.

From a tax perspective, would it be wise for small investors to shift their funds from crypto to mutual funds or stocks by the next financial year?

Most financial experts agree that it can be beneficial for small investors to move their funds from crypto to mutual funds or stocks in order to save tax.

“Speaking in terms of a taxation perspective, it may be beneficial for small investors to move their funds from crypto to mutual funds or stocks to save tax when the tax rate on crypto is higher than that of stocks and mutual funds. Also, the deduction is not allowed for expenses in case of crypto, while it is allowed for stocks and mutual funds. However, the overall decision is made taking into account the risk appetite, ROI and allocation of portfolio, etc., among other factors. Abhishek Soni, Co-Founder and CEO, Tax2win.in.

It would be wise to transfer some part of your funds to the crypto market.

“A 5 to 10% allocation is recommended for different people depending on the risk appetite. Since these are emerging technologies, one would be sorry to miss them. Many people still regret missing out on Bitcoin and Ethereum Rise. Furthermore, higher risk would be worrisome as volatility in cryptocurrencies is very high. So 5 to 10% exposure would be the best option for your portfolio. Diversification is the key to a stable source of passive income,” said Vinshu Gupta, Founder and Director, Nonblocks Blockchain Studio.

At present, how much tax is required to be paid on income from stocks and mutual funds? How does this compare to the new 30% tax announced for crypto income?

Short-term capital gains on sale of equity shares/equity-oriented mutual funds are taxed at a flat rate of 15%. However, long-term capital gains on sale of equity shares/equity-oriented mutual funds are taxed at more than 10% 1 lakh profit. No tax on profit up to Rs. 1 Lac. Abhishek Soni said that other long term capital gains are taxable at the rate of 20% with indexation benefit and short term capital gains are taxable.

Furthermore, in Budget 2022, taxation of crypto has been introduced which proposes to tax income from crypto at flat 30% without allowing deduction of expenses excluding the cost of acquisition. In addition, losses from crypto are not allowed to be set off from any other income and cannot be carried forward, Sony said.

Undoubtedly the proposed 30% tax for crypto trading income is too high, said Kunal Jagdale, founder of the Bitsair exchange. While this may not make much sense for taxpayers belonging to the higher income bracket, where the taxation rate is already 30%, it will affect those who have enjoyed tax-free returns from crypto trading so far. Generally, this group includes low-income people and students who were paying zero or very little tax on their crypto gains.

Thus, the higher tax will only affect smaller players, he said.

Vinshu Gupta, founder and director of Nonblocks Blockchain Studio, said that a 30% tax on crypto is both better and worse.

“a 30% tax on crypto There is both better and worse. Better because no complicated tax calculation formula is required to save you a lot of worry and hassle. Even worse, if you consider the flat rate. Remember, there are no surcharges, no tax advisory fees, and no clutter. Most people rarely keep to themselves because every day there is good and bad news for each and every stock,” said Vinshu Gupta.

tax on stock

Long term capital gains tax is tax-free if the equity is held for more than one year and is purchased from a stock exchange.

Short term capital gains tax (holding period less than one year): 15% flat rate.

tax on mutual funds

Long Term Capital Gains Tax (Holding period more than one year):

More than 1 lakh benefits:

Equity Fund: 10% + Cess

Debt Fund: 20% + Cess

Short term capital gains tax (holding period less than one year): 15% flat rate.