LUNA 2 launch is considered as compensation with the like investment. However, investors in India now face being taxed on their income from this new token.
LUNA 2 will be taxed in India
Investors worldwide have suffered heavy losses after the collapse of Terra (LUNA). Still, they could recover some of their capital through the new token distributed through the batch airdrop last May 28.
As for investors in India, they are not so lucky. Having suffered heavy losses, they now also have to face the problem of being taxed.
The country’s tax system punishes those who invest in cryptocurrencies. Under the new crypto tax regime adopted on April 1, any income from the “transfer” of “virtual digital assets” will be taxed at 30%. While it doesn’t explicitly state how airdrops should be taxed, Jay Sayta, a technology and gaming lawyer, and Manhar Garegrat, executive director of policy at cryptocurrency exchange CoinDCX, say distributions that can be considered income and are taxable.
“The wording in the law is ambiguous, including the definition of virtual digital asset and the definition of transfer, making it susceptible to litigation by the tax authorities. They often take the most positive stance to collect higher taxes, although such a view can lead to absurdity.”
According to Rajagopal Menon, vice president of Binance-owned WazirX, more than 160,000 investors held Luna on the exchange on May 9. By May 15, this number has increased by 77% in India. It is not clear how many more investors hold TerraUSD.
Anoush Bhasin, the founder of crypto-asset tax consulting firm Quagmire Consulting, says that Luna 2.0 airdrops could fit the existing definition of a gift, so a flat 30% tax rate could be not applicable. Still, gifts are taxed based on the taxpayer’s income range or low rate.
According to experts Bloomberg spoke to, there will be two taxing stages under the new tax regime.
First, at the time of receiving the airdrop, a gift tax or a flat tax of 30% will be charged based on the token’s value at the time of credit.
Second, if tokens are sold, a flat tax of 30% will be applied on incremental income earned regardless of how tokens are classified, should the tokens increase in value.The difficulty reflects the Indian government’s long standing uneasy relationship with cryptocurrencies. The tax structure announced this year treats digital assets less favorably than stocks and bonds, leading to warnings of a crypto exodus. Transactions dried up as the government-backed payment network was unavailable to crypto exchanges, leaving customers unable to fund their accounts in rupees.
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