Commodity Transaction Tax (CTT):-
Trading in derivatives including commodity derivatives is regulated by the Securities Contract (Regulation) Act, 1956 (SCRA). Prior to 2015, derivative trading in commodities was regulated by the Forward Markets Commission (FMC) under the Forward Contracts (Regulation) Act, 1952 (FCRA). In 2015, the FCRA was repealed and the FMC was merged with the SEBI. As a result, the recognised associations defined in the FCRA were replaced by the recognised stock exchange defined in the SCRA. Subsequently, the scope of “commodity derivatives” was expanded vide notification dated 27th September, 2016, which notified a number of goods for the purpose of its definition in clause (bc) of section 2 of the SCRA. These goods included cereals and pulses, oil seeds/ oil cakes and oils, spices, metals, precious metals, gem and stones, fibres, energy, sweeteners, plantation, dry fruits and others.
Presently, as per SCRA regulations, derivative trading in commodities is limited only to commodity ‘futures’ and ‘option on commodity futures’. The underlying asset in the ‘option on commodity futures’ is a ‘commodity future’. This means that upon expiry, if the ‘option’ is exercised, the option-holder gets a right to buy or sell a ‘commodity future’ and not the right to buy or sell the goods directly. However, vide notification dated 18th October, 2019, ‘option in goods’ has also been included in the definition of ‘derivatives’ in clause (ac) of section 2 of the SCRA. This has paved the way for new derivative product ‘options in goods’ with goods notified on 27.09.2016 directly as the underlying asset. Moreover, ‘commodity futures’ based on prices or indices of prices of ‘commodity futures’ is also likely to be introduced as a new product in the commodity derivative market.
- Sale of a commodity derivative based on prices or indices of prices of commodity derivatives at the rate of 0.01% payable by the seller, which is the same rate at which CTT is currently charged on a transaction of sale of a commodity derivative;
- Sale of an option in goods, where option is exercised resulting in actual delivery of goods at the rate of 0.0001% payable by purchaser;
- Sale of an option in goods, where option is exercised resulting in a settlement otherwise than by the actual delivery of goods at the rate of 0.125% payable by purchaser, which is also the rate at which securities transaction tax is levied on a transaction of sale of an option in securities, where the option is exercised.