Investors in (LUNA) were hit hard by May. 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 launched to the markets on May 28th. To partially compensate for people’s losses, asset were airdropped to existing investors. 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 owners in India could be subject to a 30% tax on Terra2.0 coins. This would make it impossible for investors to balance any gains they receive from new tokens against losses. 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.

Punitive tax system

Rajagopal Menon (Vice President of Binance-owned WazirX), stated that Luna was held by over 160,000 Indian investors on May 9, and had increased by 77% by May 15, according to India. TerraUSD was not held by exactly how many investors.

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%. It is unclear how crypto-airdrops are included in the tax picture or whether they should. But tax professionals believe such distributions should be taxed as income.

Terra 2.0’s airdrop may be a unique example, but technically it could fit within the definition of gift. Therefore, a flat 30% tax might not apply. However, in that instance, gifts are taxed according to a taxpayer’s income range, or slab rate. The new tax system has two types of taxation applicable to airdrops.

The first is that an airdrop will result in a flat 30% tax or a gift tax. This tax is based on how the tokens were valued. A flat 30% tax is applied to income earned if tokens have been sold, regardless of whether the tokens were categorized and/or increased in value.

The new tax policy reflects the Indian government’s complicated approach to crypto. When compared to stocks and bonds, digital assets are clearly treated less favorably than other investments. The Reserve Bank of India also strongly opposes cryptocurrencies such as, saying that these speculative instruments have 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 warn that it could lead to crypto exodus.

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