What is Commodities Trading?
Commodities trading is an avenue to generate revenue through futures and options contracts on the prices of essential goods and commodities in the country. Commodities include essential goods such as pulses, metals, crude oil, natural gas and the like. Commodities are further subdivided into agricultural and non agricultural goods. Non agricultural commodities, as the term suggests, refers to items like metal and energy products such as natural gas, crude oil, etc. Commodities trading can be of two types – speculative and non-speculative. If the contract is cash settled and no delivery of goods takes place, its speculative trading. If there is a delivery of goods at the end of the transaction, in that case it is non-speculative trading.
What is commodity transaction tax?
Commodity Transaction Tax is a tax levied on exchange traded non-agricultural commodity derivatives in India. It was introduced in the Union Budget of 2013-2014 by the finance minister with the objective of increasing financial revenues for the government, driving transparency and reducing speculation in the commodities market. The rationale behind levying a commodities trading tax was that in the same way equity trading or trading in securities-based derivatives attract a securities trading tax (STT), non-agro commodity futures contracts traded on recognised exchanges should also attract a tax.
According to the budget speech given by the erstwhile finance minister P. Chidambaram, there is no difference between trading derivatives in the securities market and trading in the commodities market except the asset underlying them. The commodities transaction tax was also seen as a move to bring parity between the securities market and commodities market. Non-agricultural commodities include gold, silver, aluminium and other non-ferrous metals. It also includes energy products like crude oil and natural gas.
What commodities are transaction taxes applicable to?
The Commodity Transaction Tax is applicable to non-agricultural commodities which includes gold, silver, aluminium and other non-ferrous metals. It also includes energy products like crude oil and natural gas. In the same way that buying and selling of securities-based derivatives are taxed, the purchase and sale of commodity-based derivatives are taxed bringing in much needed regulation and transparency in the sector. Currently, STT is charged at 0.1% to 0.025% on stock market transactions.
Who has to pay commodity transaction tax?
CTT is applicable to all individuals trading in commodity-based derivatives. A summary of the transactions taxable, rates and values on which they are payable is provided below.
|Sr. No.||Taxable commodities transaction||Payable on||Rate||Payable by|
|1||Sale of a commodity derivative (except exempted agricultural commodities)||price at which the commodity derivative is traded||0.01 %||Seller|
|2||Sale of an option on commodity derivative||the option premium||0.05 %||Seller|
|3||Sale of an option on commodity derivative, where option is exercised||the settlement price||0.0001 %||Purchaser
In addition to CTT, traders of commodities pay a series of other charges including brokerage, deposit margins, and stamp duty. Before the CCT was introduced, traders didn’t have to pay any tax on the purchase and sale of non-agricultural commodities. The addition of CTT has made commodities trading expensive. When STT was implemented, it led many investors to shift to commodity exchanges as there were no transaction charges levied on commodity trading. However, if CTT is allowed as a deduction if the income from such transactions is part of business income.