Meaning Of Commodities Trading:
- Commodities trading is best way to generate revenue through the future and options contracts on the prices of essential goods and commodities in the market of 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.
Types of Commodities Trading:
Speculative Trading
If the contract is cash settled and no delivery of goods takes place, its speculative trading.
Non-speculative trading
If there is a delivery of goods at the end of the transaction, in that case it is non-speculative trading.
Important Note:
Commodities trading is regulated by the Securities and Exchange Board of India(SEBI). Commodities trading is a good way to diversify your portfolio on the back of the economic growth of the country.
What is commodity transaction tax?
- Commodity transaction tax 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.
- Commodity Transaction Tax is a tax levied on exchange traded non-agricultural commodity derivatives in India.
- Commodity Transaction Tax is not applicable on in respect of trading in agricultural commodity derivatives from Assessment Year 2019-20.
- Non-agricultural commodities include gold, silver, aluminum and other non-ferrous metals. It also includes energy products like crude oil and natural gas.
Applicable transaction taxes applicable to Commodities:
- The Commodity Transaction Tax is applicable to non-agricultural commodities which includes gold, silver, aluminum 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, Commodity Transaction Tax is charged at 0.1% to 0.025% on stock market transactions.
Who need to pay commodity transaction tax?
CTT is applicable to all individuals trading in commodity-based derivatives
Details of the transactions taxable, rates and values on which they are payable is provided below.
| Taxable commodities | Payable on | Rate of Tax | Payable by |
|---|---|---|---|
| Sale of a commodity derivative (except exempted agricultural commodities) | price at which the commodity derivative is traded | 0.01 % | Seller |
| Sale of an option on commodity derivative | the option premium | 0.05 % | Seller |
| 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.
