Commodity Transaction Tax (CTT) – Overview, Rates, Tax Implications

The finance minister, Mr. P Chidambram introduced CTT i.e. Commodity Transaction Tax under Budget 2013 to tax the transactions of commodities trading. This tax was levied with the intention to increase the government revenue and keep a check on speculative transactions. CTT was introduced in Finance Act 2013 and was effective from 1st July 2013.

What is Commodity Transaction Tax (CTT)?

Commodity Transaction Tax i.e. CTT was introduced by the government to tax the trading of non-agricultural commodities. Initially, there was no tax on commodities trading. However, there was no difference between derivative trading in the securities market and derivative trading in the commodities market, only the underlying asset was different. Hence, CTT was introduced to equalise the trading rules for equity trading and commodities trading.

While Securities Transaction Tax i.e. STT is levied on securities trading, Commodities Transaction Tax i.e. CTT is levied on commodities trading.

Commodities on which CTT is levied

CTT is levied on the seller and buyer doing a commodity transaction through a futures contract. It is calculated on the trade price and depends upon the size of the contract.

In the case of agricultural commodities, CTT is exempt. In the case of non-agricultural commodities such as metals (copper, silver, gold, zinc, aluminium, etc) and energy products (crude oil and natural gas), the CTT rate is the same as equity futures i.e. 0.01% of the trade price.

Commodity Transaction Tax (CTT) Rates

CBDT issued a notification with the CTT rates that MCX must charge on the transactions executed on the stock exchange. Below are the CTT Rates:

Taxable Commodity Transaction Charged on CTT Rate Payable By
Sale of a commodity derivative (except exempt agricultural commodities) Trade Price 0.01% Seller
Sale of option on commodity derivative (option not exercised) Option Premium 0.05% Seller
Sale of option on commodity derivative (option exercised) Settlement Price 0.0001% Purchaser

List of Agricultural Commodities Exempt from CTT

Tax Implications on CTT paid on Commodity Trading

Commodities Trading is considered to be a Non-Speculative Business Income. Thus, a commodities trader must file ITR-3 to report such business income and pay income tax at slab rates. Further, as per the Budget Speech, trading in commodity derivatives is not a speculative transaction and the trader can claim CTT as a valid business expense.

CTT paid on trading transactions is a direct expense related to trading income. The trader can report it as an expense in the P&L Account while filing ITR-3 on the Income Tax Website.

FAQs

What is the difference between STT and CTT?

STT i.e. Securities Transaction Tax is levied on trading in equity, equity derivatives, and mutual funds. CTT i.e. Commodity Transaction Tax is levied on trading in commodity derivatives. While CTT is levied on the sell value of the transaction, STT in some cases is applicable on both the buy and sell value of the transaction.

How is CTT charged on Commodity Trading?

Commodity Transaction Tax i.e. CTT is levied on non-agricultural commodity trading. Agricultural commodity trading is exempt from CTT. CTT at 0.01% is levied on the sell value of trade in the case of futures trading. CTT at 0.05% is levied on the sell value of trade in the case of options trading.

Who is liable to pay CTT i.e. Commodity Transaction Tax?

The buyer or seller is liable to pay CTT to the broker on the commodity trading transactions. The broker deposits the same with MCX (Multi Commodity Exchange) which is an exchange for commodities trading.

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