Effective April 1, all income from cryptocurrency “transfers” will be taxed at a fixed rate of 30% under the new cryptocurrency tax regime. It doesn’t say how the airdrops should be taxed, but Jay Sayata, a technology and gaming attorney and executive director of policy at crypto exchange CoinDCX, Manhar Garegrat, said distributions can be considered income and are liable to tax.
“The terms in the law are so vague, including the definition of virtual digital asset and the definition of transfer, that it would be open to trial by the tax department for challenge,” Sayata said. “They generally consider the most aggressive approach possible with a view to collecting higher taxes, despite the fact that such an approach may lead to absurdity.”
According to Rajagopal Menon, vice-president of Binance-owned WazirX, there were over 160,000 investors holding Luna on the exchange as of May 9, and by May 15 the number in India has increased by 77%. It is not clear how many more investors have TerraUSD.
“The increase can be attributed to the increase in buyers after May 9, where the buyer-to-seller ratio was 5:1. In terms of volume, May 11 and 12 saw the highest volumes at Luna – 53 million USDT for both days combined,” Menon wrote in an email.
Anush Bhasin, founder of cryptocurrency asset tax advisory firm Quagmire Consulting, said that Luna 2.0 airdrops may fit into the current definition of gifts, so a flat 30% tax may not apply, but depending on the taxpayer’s income threshold or slab rate. Gifts are taxed. ,
worst case
Experts Bloomberg said that under the new tax structure, there will be two stages of taxes, whether it is considered a gift or income from cryptocurrencies. Firstly, a gift tax or a flat 30% tax will be applied at the time of receiving the airdrop, based on the token valuation at the time of credit. Second, if the tokens are sold, a 30% tax will be imposed on the additional income gained, regardless of how the tokens are classified when the tokens increase in value.
“It may also happen that people have received tokens worth more than Rs 50,000 and if it is treated as a gift, you will have to pay tax on it, but as long as they sell it, if the price drops, then You’ll feel really low. money, and you can actually spend more out of your pocket paying taxes and it’s a worst case scenario for them because Luna 2.0 was actually released to compensate,” said leader of digital tax at Nishith Desai Associates Mayyappan Nagappan said.
According to CoinGecko and Huobi Global, Luna 2.0 began trading on May 28 and at 2 p.m. on June 3, US East Coast Time, it was trading at $6.59, down 9% over the past 24 hours.
The dilemma reflects an Indian government that has had an uncomfortable relationship with crypto for a long time. The tax structure unveiled this year treats digital assets adversely compared to stocks and bonds, prompting warnings of an exodus from crypto. Trading has stopped as the government-backed payment network was unavailable to cryptocurrency exchanges, leaving customers unable to fund their accounts with Rupee.
Why Token Airdrops
Airdrops are a way to send tokens directly to the wallet and can be used for a variety of purposes. Airdrops are a common tool for early stage crypto projects that attract users by offering them free tokens and can be used to reward early adopters.
“The airdrop is a way of showing gratitude,” said Harsh Rajat, co-founder of the Ethereum Push Notification Service, or EPNS, which broadcast its native token push to early adopters and those who donated to the project last year. The concept is it is made by the people and for the people, if people are testing the protocol, spending their time then you should be rewarded some of the rights of the protocol through governance or usability of tokens and that’s why that airdrops exist.”
In the case of Terra, backer TerraForm Labs used an airdrop to compensate investors and revived its project after the stablecoin collapsed, causing the value of sister token Luna to near zero, creating billions of dollars in assets. got eliminated. TerraForm Labs used a snapshot of the older blockchain, now known as Terra Classic, to determine which user wallets should receive Luna 2.0, and by how much.
Rajat said global projects will not stop giving airdrops, but they will find it difficult to do so in India as crypto investors may lose a lot of money.
Rajat said, “Airdrop attracts a lot of users, it generates a lot of noise. Sometimes you will be able to collect tax, sometimes you will not be able to.”
(with Bloomberg inputs)