After the Terra Crash Saw Billions Wiped in India, Taxes May Hit Harder
2022.06.07 12:01
After the Terra Crash Saw Billions Wiped in India, Taxes May Hit Harder
May was a dark month for Terra (LUNA) investors worldwide. As the algorithmic-stablecoin project crashed, investors lost billions as the value of the ecosystem’s token’s plummeted 88% in just five days.
Terra 2.0 was introduced to the market on May 28th. Assets were airdropped to existing stakeholders as a way to partially compensate people for their losses. Unfortunately, the crypto-skeptic tax system in place in India seems to be hanging investors in the world’s second-largest crypto market out to dry.
TerraUSD and Luna token holders in India who received the new Terra 2.0 coin could see them taxed by as much as 30%. Should this be the case, it would prevent the investors from offsetting any gains from the new tokens against the losses from the previous ones. Of course, global projects won’t stop providing airdrops, but it will certainly be more challenging to do them in India as crypto investors in the region could stand to lose a lot of money.
A Punitive Tax System
According to Rajagopal Menon, vice president of Binance-owned WazirX, over 160,000 investors held Luna on the exchange on May 9th, and by May 15th, that number had grown by 77% in India. It is unclear exactly how many investors held TerraUSD.
Under the new crypto tax regime, which came into effect in the country on April 1st, any income from the “transfer” of a “virtual digital asset” is taxed at a flat rate of 30%. The legislation does not define how crypto airdrops fit into the picture, or whether they should be taxed. However, tax experts believe that such distributions are viewed as income, and are thus subject to taxation.
The Terra 2.0 airdrop is a relatively unique case though, and could technically fit the definition of gift, so a flat 30% tax may not apply. However, in that instance, gifts are taxed according to a taxpayer’s income range, or slab rate. Under the new tax regime, there are two categories of taxation for airdrops.
First, when receiving an airdrop, a gift tax, or flat 30% tax based on the valuation of tokens, will be applied. Secondly, if the tokens are sold on, then a flat 30% tax will be applied on the income earned, regardless of how the tokens are categorized or if the tokens rose in value.
The new tax policy reflects the Indian government’s complicated approach to crypto. Digital assets are undoubtedly treated unfavorably when compared with stocks and bonds. The Reserve Bank of India has also vehemently opposed cryptocurrencies like Bitcoin, claiming that such speculative instruments offer no inherent value.
In Mumbai, ahead of the government releasing its consultation paper on cryptocurrencies, Reserve Bank Deputy Governor Rabi Sankar told the Economic Times that the soon-to-be-introduced central bank digital currencies (CBDCs) could “kill” what little cases exist for private virtual currencies like Bitcoin. Experts have warned that this could even lead to a crypto exodus.
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