Budget 2021

More options for commodities trade

Rajalakshmi Nirmal | Updated on February 01, 2018

Several key announcements have been made for the commodity market. First, options on commodity derivatives that are presently recognised as ‘option in securities’ under SCRA, have been included in the definition of taxable commodity transaction through amendment to the Finance Act, 2013. Secondly, while STT (Securities Transaction Tax) is applicable on the options on commodity derivatives so far, from April 1, 2018, CTT (Commodities Transaction Tax) will be applicable on them.

The CTT to be paid by the seller of an options contract on commodity derivative remains unchanged at 0.05 per cent on the premium amount.

However, with effect April 1, the tax to be paid by the purchaser on exercise of an options contract on commodity derivative has been cut to 0.0001 per cent (on settlement value) from 0.125 per cent at present. This is set to boost interest in option contracts and could see exchanges launching new commodity option contracts in the coming year.

What is also a positive is that the FM has said that trading in any agriculture commodity derivatives will not be treated as speculative even if they are not charged CTT, by amending Section 43 (5) (e) of the Income Tax Act. This is a welcome move, as this lets any trader in agri futures/options contract to set off his loss against business income (if any) and reduce his total tax outgo. Currently, this benefit is available only for commodity derivatives on which CTT is applicable – gold, silver, energy and other non-agri and agri-processed commodities.

The FM gave a boost to gold traders by announcing that the Centre will soon formulate a comprehensive gold policy and develop gold as a separate asset class. This means that gold could get a separate spot exchange and a regulator to look into its trading.

With a gold spot exchange, India – the second largest market for the yellow metal in the world — will set its own benchmark price for gold; instead of relying on the LBMA price. In addition to benefit of transparent pricing, the participants in the spot market will also have quality assurance and higher liquidity. It will bring more banks and institutional players into the market.

The FM also indicated that the gold monetisation scheme will be revamped.

Published on February 01, 2018

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