Terra investors throughout the world lost billions of dollars when the algorithmic stablecoin project collapsed, but investors in India could be those who may have been impacted the most.
For starters, the Indian investors cannot set off or carry forward the loss they have incurred in the crash against any other profit earned in other crypto tokens.
And secondly, Indian investors would be penalised for receiving the airdrop which Terraform Labs distributed to the holders of version one Terra Luna, as a means to reduce the loss they incurred.
What is Airdrop?
Airdrop is the process in which crypto tokens are delivered to the wallets of cryptocurrency traders, more often than not, without any consideration.
The recently introduced crypto tax laws do not have any clarity on the treatment of airdrops.
Crypto expert and founder of Crypto Legal, Purshottam Anand told Business Today, “ There is a lack of clarity when it comes to transactions like staking, airdrops, mining, etc.”
Talking particularly about Terra Luna investors, he said, “The airdrop which Terra Luna Classic holders have received was an attempt by Terraform Labs to reduce the loss of those who lost money in the crash. But due to ambiguity, those transactions would be treated as an inflow and would most likely be taxed as an income.”
This means that Terra Luna holders, who witnessed their whole wealth being wiped out due to a crash, will not be able to set off those losses or carry them forward in the next financial year. Moreover, they would also have to end up paying taxes on the airdrop received from Terraform Labs, despite the fact that the airdrop was meant to reduce the burden of their loss.
When asked how Indian investors should approach this, he said, “This was an extremely unexpected situation. It was one of the top performing tokens and also had a place amid top ten tokens by market cap. And yet due to various reasons, it crashed.”
Anand said, “This just means investors need to be more cautious. They need to do their own research, research about the project, about the founders and about the use cases before actually investing in any cryptocurrency.”
He also said that there would be some clarity from the side of the tax department on the tax treatment of the different types of crypto transactions.