Home / Money / Personal Finance /  Time to shift funds from crypto to mutual funds or stocks before March 31?

Cryptocurrencies will now be taxed in India. The new tax laws on crypto and other digital assets will come into effect from 1 April 2022. Presenting the Union Budget 2022-23 in the Lok Sabha, Finance Minister Nirmala Sitharaman said the transfer of digital assets will attract a 30 per cent tax. Additionally, all transfers of such assets will attract 1 per cent tax deducted at source (TDS). In her Budget speech on 1 February, Sitharaman said gifts received in the form of cryptocurrencies will also be taxed at the same rate.  

We talked to some of the financial experts to know what should small investors investing in crypto do now.

From a tax perspective, will 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 believe that it may be beneficial for small investors to shift their funds from crypto to mutual funds or stocks to save the tax.

"Talking with reference to the taxation perspective, it may be beneficial for small investors to shift their funds from crypto to mutual funds or stocks to save the tax considering the tax rate on crypto is high as compared to stocks and mutual funds. Also, deduction of expenses is not allowed in the case of crypto whereas the same is allowed for stocks and mutual funds. However, the overall decision needs to be taken considering the other factors as well such as risk appetite, ROI and allocation of portfolio etc," said Abhishek Soni, Co-founder and CEO, Tax2win.in.

It would be wise to shift some portion of your funds to the crypto market. 

“A 5 to 10% allocation is recommended based on risk appetite for different people. Since these are emerging technologies, it would be a regret to have missed these. Many people still regret missing the Bitcoin and Ethereum Rise. Further, more exposure would be worrisome since fluctuations are very high in cryptocurrencies. So a 5 to 10% exposure for your portfolio would be the best option. Diversification is the key to a stable source of passive income," said Vinshu Gupta, Founder and Director, Nonceblox Blockchain Studio.

What is the tax required to be paid on income from stocks and mutual funds currently? How does it compare to the new 30% tax announced for crypto income?

Short-term capital gains on the sale of equity shares/equity-oriented mutual funds are taxed at a flat rate of 15%. However, long-term capital gains on the sale of equity shares/equity-oriented mutual funds are taxed at 10% above 1 lakh gain. No tax on gain up to Rs. 1 lakh. Other long-term capital gains are taxable at the rate of 20% with indexation benefits and short-term capital gain is taxable as per the applicable slab rate, said Abhishek Soni.

Further, in Budget 2022, taxation of crypto is introduced in which it is proposed to tax income from crypto at a flat 30% without allowing deduction of expenses except for the cost of acquisition. Also, loss from Crypto is not allowed to set off from any other income and it cannot be carried forward as well, added Soni.

Kunal Jagdale, Founder, BitsAir Exchange said,undoubtedly the proposed 30% tax for crypto trading income is too high. While this may not matter much for the taxpayer belonging to the higher income bracket, where the rate of taxation is already 30%, it will impact those who have so far enjoyed tax-free returns from crypto trading. Normally, this group includes people with low income and students who were paying zero or very little tax on their crypto profit. 

Thus, the higher tax will only affect the small players, he added.

Vinshu Gupta, Founder and Director, Nonceblox Blockchain Studio said a 30% tax on crypto is both better and worse.

“A 30% tax on crypto is both better and worse. Better because no complex tax calculation formula is required saving you a lot of worry and trouble. Worse, only if you consider the flat rate. Remember, there is no surcharge, no Tax Consultant fees, and no clutter. Most people rarely hold as there is good and bad news for each stock on an everyday basis," said Vinshu Gupta.

Tax on Stocks

Long Term Capital Gains Tax is Tax-free if equity is held for more than one year and bought 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):

Gains Exceeding 1lakh:

Equity Funds: 10% + Cess

Debt Funds: 20% + Cess

Short Term Capital Gains Tax (Holding Period Less than one year): 15% Flat Rate.

 

ABOUT THE AUTHOR

Sangeeta Ojha

Sangeeta is a Chief Content Producer at Livemint. Writes on personal finance, banking and real estate. She has over 12 years of experience as a journalist with television and digital media
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
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