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.

Depreciation under Income Tax Act

What is Depreciation?

The meaning of depreciation is a reduction in the value of an asset over a period of time. A taxpayer can claim it as a valid business expense. Depreciation as per the Income Tax Act is a decrease in the value of the asset over its useful life. It can be claimed as an expense and reduced from the taxable income of the taxpayer. A taxpayer can claim it on both tangible assets and intangible assets as per the prescribed rates in the Income Tax Act.

The calculation of depreciation under Income Tax Act is different than the Companies Act. In the case of a Company, it is calculated as per the prescribed rates and methods under the Companies Act, 2013. Thus, in the case of a Company, the depreciation as per the books of accounts would be different than the amount as per the Income Tax Return.

Block of Assets

Block of Assets means a group of assets falling under the same category and having the same depreciation rate. Gross Block is the sum of the gross value of each asset as of the beginning of the financial year. Net Block is the sum of the net value of each asset at the end of the financial year after reducing the depreciation.

Gross Block – Depreciation = Net Block

The Block of Assets comprises of the following types of assets:

  • Tangible Assets – It includes the assets that exist in physical form such as land, building, furniture, car, plant & machinery, etc.
  • Intangible Assets – It includes the assets that do not exist in physical form such as goodwill, patent, copyright, license, franchise, etc.

Calculation of Gross Block of Assets is as per the table below:

  Particulars Amount
  Opening WDV as on 1st April XXXX
Add Cost of Assets purchased XXXX
Less Sale Value of Assets sold (XXXX)
  WDV of Block of Assets XXXX
Less Depreciation (XXXX)
  Closing WDV at the end of the year XXXX

Conditions to claim Depreciation

The taxpayer must fulfill the following conditions to claim depreciation.

  • The taxpayer should own the asset either wholly or partially
  • The taxpayer should use the asset for the purpose of business or profession and not for personal purpose
  • The asset should be actually used in the financial year
  • Each co-owner can claim it to the extent of the asset owned by them

Depreciation Rate & Method of Calculation

The calculation of depreciation under the Income Tax Act is different than the Companies Act. In the case of a Company, it is calculated as per the prescribed rates and methods under the Companies Act, 2013. Thus, in the case of a Company, the depreciation as per the books of accounts would be different than the amount as per the Income Tax Return.

Methods to calculate depreciation are mentioned below:

As Per the Companies Act 2013

  • Unit of production method
  • Written-down value method
  • Straight-line method

As Per the Income Tax Act 1961

  • Written-down value method (based on the block of assets)
  • Straight-line method for units generating power

The rate of depreciation for different blocks of assets is prescribed under the Income Tax Act.

  • If the asset is used for 180 days or more during the financial year, calculate using the full rate.
  • If the asset is used for less than 180 days during the financial year, calculate using half rate.

Interest paid on money borrowed for buying a capital asset should be added to the cost of the asset till the time the asset is put to use. Once the asset is put to use, the taxpayer can claim the interest as revenue expenditure.

Income Tax Depreciation Rates for AY 2019-20

The Income Tax Department has prescribed rates as on the incometaxindia.gov.in. These rates are applicable AY 2003-04 onwards. You can refer to the rates as prescribed by the Income Tax Department here – Income Tax Depreciation Rates.

Additional Depreciation

In addition to the normal depreciation, you can also claim Additional Depreciation at the rate 20% if the following conditions are satisfied:

  • The taxpayer is in the manufacturing business
  • There is a purchase of new plant or machinery installed after 31st March, 2005

The rate of additional depreciation would be 20% of the actual cost if the asset is used for 180 days or more. If the asset is used for less than 180 days, the rate would be 10%.

Example for Depreciation Calculation

Shaurya is in the business of manufacturing. Here is the data of the capital assets of his business.

Particulars Amount
Opening WDV of Plant & Machinery as on 1st April 2019 40,00,000
New machine purchased & put to use on 30th June 2019 15,00,000
New machine purchased & put to use on 1st February 2020 10,00,000
Computer purchased on 25th January 2020 2,00,000

Solution

Particulars Amount
Normal Depreciation  
Dep at the full rate of 15% on P&M of 40 lacs 6,00,000
Dep at the full rate of 15% on P&M of 15 lacs used for more than 180 days 2,25,000
Dep at half rate of 7.5% on P&M of 10 lacs used for less than 180 days 75,000
Dep at the full rate of 40% on Computer of 2 lacs 80,000
Additional Depreciation  
Dep at the full rate of 20% on new P&M of 15 lacs used for more than 180 days 3,00,000
Dep at half rate of 10% on P&M of 10 lacs used for less than 180 days 1,00,000
Total Depreciation 13,80,000

Block of Assets

  Particulars P&M Computer
  Opening WDV as on 1st April 40,00,000 NIL
Add Cost of Assets purchased 25,00,000 2,00,000
Less Sale Value of Assets sold NIL NIL
  WDV of Block of Assets 65,00,000 2,00,000
Less Depreciation 13,00,000 80,000
  Closing WDV at the end of year 52,00,000 1,20,000