Tax treatment of transactions in respect of trading in agricultural commodity derivatives

Clause (5) of section 43 defines speculative transaction. The proviso to the said clause, however, stipulates certain transactions to be non-speculative nature even though the contracts are settled otherwise than by the actual delivery or transfer of the commodity or scraps. The clause (e) to the said proviso provides that trading in commodity derivatives carried out in a recognised stock exchange, which is chargeable to commodity transaction tax is a non-speculative transaction.

Commodity transaction tax (CTT) was introduced vide Finance Act’ 2013 to bring transactions relating to non-agricultural commodity derivatives under the tax net while keeping the agricultural commodity derivatives exempt from CTT. Since no CTT is paid, the benefit of clause (e) of the proviso to clause (5) of section 43 is not available to transaction in respect of trading of agricultural commodity derivatives and accordingly, such transactions are held to be speculative transactions.

In order to encourage participation in trading of agricultural commodity derivatives, it is proposed to amend the provisions of clause (5) of section 43 to provide that a transaction in respect of trading of agricultural commodity derivatives, which is not chargeable to CTT, in a registered stock exchange or registered association, will be treated as non-speculative transaction.

These amendments will take effect from 1st April, 2019 and will, accordingly, apply in relation to assessment year 2019-20 and subsequent assessment years.

[Clause 12]

 

Non-speculative treatment of agricultural commodity derivatives restores non-speculative classification for exchange-traded trades even without commodity tax. Agricultural commodity derivatives were treated as speculative because the proviso excluding exchange-traded derivatives from the speculative definition required levy of commodity transaction tax, from which agricultural derivatives are exempt. The proposed amendment provides that trading in agricultural commodity derivatives on a registered stock exchange or association will be treated as non-speculative even if not chargeable to commodity transaction tax, altering their income-tax classification prospectively.