Cryptocurrency tax system: Indian Terra investors face double blows

Luna 2.0 began trading on May 28.

When the algorithmic stable currency project collapsed, Terra's investors around the world lost billions of dollars, but when the new tokens were distributed as compensation, they recovered a small part of the bet. Indian investors are not so lucky.

Due to the punitive nature of the country's tax system on cryptocurrency investment, the holders of TerraUSD and Luna tokens who obtain new currency (known as Luna 2.0) in the so-called air drop will face a double blow. Tax experts said that they might be taxed up to 30% of the value of the token, and they could not offset the loss of the previous token with any gain of the new token.

According to the new cryptocurrency tax system that came into effect on April 1, the "transfer" income of "virtual digital assets" will be taxed at a uniform tax rate of 30%. It did not explicitly mention how air drop should be taxed, but Jay Sayta, a technology and game lawyer, and Manhar Garegrat, the policy executive director of CoinDCX, a cryptocurrency exchange, said that air drop can be regarded as income and should be taxed.

Seta said: "The wording of this law is very vague, including the definition of virtual digital assets and the definition of transfer, which may be challenged by the tax authorities." "They usually consider the most radical view in order to collect higher taxes, although such a view may lead to absurdity."

According to Rajagopal Menon, the vice president of WazirX under Binse, on May 9, more than 160000 investors in the transaction held Luna shares. As of May 15, the number in India increased by 77%. It is not clear how many investors still hold TerraUSD.

"This increase can be attributed to the surge of buyers after May 9, when the ratio of buyers to sellers was 5:1. In terms of trading volume, May 11 and 12 were Luna's highest trading volume - a total of 53 million dollars in these two days," Menon wrote in an email.

Anush Bhasin, founder of Quagmire Consulting, a crypto asset tax consulting company, said that Luna 2.0 airdrop may meet the existing definition of gift, so the uniform tax rate of 30% may not apply, but the tax rate of gift is calculated according to the taxpayer's income range or slab rate.

In the worst case

Experts interviewed by Bloomberg said that under the new tax system, the tax will be divided into two stages, regardless of whether it is regarded as a gift or income from cryptocurrency. First of all, when the air drop is received, the gift tax or 30% unified tax will be levied according to the valuation of the credit era currency. Secondly, if the token is sold, no matter how the token is classified, if the value of the token rises, the incremental income will be subject to a single tax of 30%.

"There may be a scenario in which people receive INR50000 on the token as a gift, and you have to pay taxes, but if the price falls when they sell it, you will realize that there is less money. In fact, you can recover from paying more taxes than you do. This is the worst case. 2.0 The moon god is actually paying compensation," said Meyyappan Nagappan, leader, digital tax Nishith Desai colleague.

According to the data of CoinGecko and Firecoin Global, Luna 2.0 began trading on May 28. As of 2:00 p.m. (East Coast Time) on June 3, its trading price was $6.59, down 9% in the past 24 hours.

This dilemma reflects the long-term unstable relationship between the Indian government and cryptocurrency. Compared with stocks and bonds, the tax structure announced this year is unfavorable for the treatment of digital assets, leading to the warning of cryptocurrency outflow. Due to the inability of cryptocurrency exchange to use the government-supported payment network, customers cannot use rupee to fund their accounts, and the Indian rupee transaction has shrunk.

Why did token airdrop

Airdrop is a way to send tokens directly to the wallet, which can be used for various purposes. Airdrop is a common tool for early encryption projects. It attracts users by providing free tokens and can be used to reward early adopters.

"Airdrop is a way to express gratitude," said Harsh Rajat, co-founder of Ethereum Push Notification Service (EPNS). The company airdropped its native token Push to early collectors and those who donated to the project last year. "The concept of web3 is that it is up to the people and the people. If people test an agreement and spend their time, then you should reward the rights of some agreements through governance or the utility of token. That is why airdrop exists."

Take Terra as an example. After the collapse of the stable currency, its supporter, terraform Labs, compensated investors by airdrop and resumed its project. The collapse of the stable currency led to a sharp decline in the value of its sister token Luna, which was close to zero and evaporated billions of dollars of wealth. Terraform Lab uses snapshots of the old blockchain, now known as Terra Classic, to determine which user wallets should receive Luna 2.0 and how much.

Rajat said that the global project will not stop air-dropping, but they will find it difficult to do so in India, where cryptocurrency investors may lose a lot of money.

Rajat said: "Airdrop has attracted many users, and it makes a lot of noise." "Sometimes you can recover taxes, sometimes you can't."