Decoding the Commodity Transaction Tax
On 28th February 2013, India’s Finance Minister P Chidambaram proposed a transaction tax on the commodity futures trading under the direct tax provisions in the Union Budget 2013-14. The commodity transaction tax (CTT) would be levied at 0.01 percent (Rs.10 for transaction worth Rs.100000). The CTT would be levied only on non-agricultural commodities futures contracts (e.g., gold, copper and oil) traded in the Indian markets. While the agricultural futures contracts would be exempted from CTT. The tax will be payable by the seller of futures contract.
The Finance Minister’s rationale for introducing a CTT is to bring commodity market on par with the securities market where a securities transaction tax is levied. In his Budget speech, Chidambaram stated, “There is no distinction between derivative trading in the securities market and derivative trading in the commodities market, only the underlying asset is different. It is time to introduce CTT in a limited way. Hence, I propose to levy CTT on non-agricultural commodities futures contracts at the same rate as on equity futures, that is at 0.01 percent of the price of the trade. Trading in commodity derivatives will not be considered as a ‘speculative transaction’ and CTT shall be allowed as deduction if the income from such transaction forms part of business income.”