The Terra investors lost billions of dollars globally when the so-called ‘stablecoin’ project collapsed. However, they retrieved a little part of their losses when a new token was distributed as compensation. Anyhow, Indian Terra investors aren’t as fortunate as they might have to pay tax on the losses too.
India’s tax system is punitive towards crypto investing. TerraUSD as well as Luna token holders who got the new coin dubbed Luna 2.0 in an airdrop will be experiencing a double whammy.
That’s because they could be taxed 30% of the price of tokens received and they won’t be able to offset any profits in the Luna 2.0 against losses from the last one, tax experts claimed.
Whether viewed as a gift or even as income from crypto, experts said that under the current tax regime there will be a two staged taxation. Firstly, at the time of getting the airdrop, a gift tax or a flat 30% tax, will be applicable based on the price of tokens at the time of credit.
Secondly, if the tokens are sold, a flat 30% tax will be applied on the incremental amount of income gained regardless how the tokens are categorized, if the tokens rose in value.
The crypto tax that commenced from April 1 proposed that any income from the “transfer” of a “virtual digital asset” will be taxed at a flat rate of 30%.
A technology and gaming lawyer, Jay Sayta together with the executive director of policy at crypto exchange CoinDCX Manhar Garegrat, argued that the dividends can be seen as income and are liable to the tax.
“The wordings in the law are so vague, including the definition of virtual digital asset and the definition of transfer, that it would be open to litigation of challenge by the tax department,” Satya said.
There were almost 160,000 investors who held Luna on the market on May 9th. According to Rajagopal Menon, Vice President of WazirX, the number has increased by 77 percent in India by May 15. It is unknown how many investors held TerraUSD at the time of the crash.
Anoush Bhasin, the founder of crypto asset tax advisory company Quagmire Consulting, stated that the Luna 2.0 airdrop might fit into the currently existing definition of gifts so a flat 30% tax may not be applicable. However, gifts are taxed based on a taxpayer’s income range, or slab rate.
Also Read: What Is Terra 2.0? Know Everything About LUNA 2.0 Airdrop!
Terraform Labs utilized an airdrop to reimburse investors and rescue its project after the collapse of the stablecoin by sending the value of sister token Luna twirling to about zero. It wiped out billions of dollars of wealth.
According to Harsh Rajat, co-founder of EPNS, global projects will continue to provide airdrops, but they will find it difficult to do so in India because crypto investors there could lose a significant amount of money.
“Airdrops attract a lot of users, it generates a lot of noise. Sometimes you will be able to recover the tax, sometimes you won’t be able to,” added Rajat.