Amendments for ‘Trading in Commodities Derivatives’ Budget 2020

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[Applicable from Assessment Year 2020-211

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 In 2015, the FCRA was repealed and the FMC was merged with the SEBI.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, trading in derivatives including commodity derivatives is regulated by the Securities Contracts (Regulation) Act, 1956 (SCRA) and the word ‘recognised associations’ defined in the FCRA were replaced by the ‘recognised stock exchange’ defined in the SCRA.

Section 43(5) of the Income-tax Act provides that trading in commodity derivatives shall not be treated as speculative transaction if the transaction is carried through a recognized association. The Finance Bill proposes to replace the words ‘recognised associations’ with ‘recognised stock exchange’.

Further, vide Notification No. S.O. 3068(E) [F.NO. 17/2/2016- CD], Dated 27-9-2016, the scope of commodity derivatives” as defined in section 2(bc) of the SCRA was expanded to include certain goods, inter-alia, cereals and pulses, oil seeds/oil cakes and oils, spices, metals, precious metals, gem and stones, fibres, energy, sweeteners, plantation, dry fruits and others. Furthermore, vide Notification No. S.O. 3743(E) [F.NO.8/9/2018-CD], Dated 18-10-2019, ‘option in goods’ has also been included in the definition of ‘derivatives’ in section 2(ac) 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.

Now, necessary changes are proposed in Chapter VII of the Finance Act, 2013 to align the provisions of Commodity Transaction Tax (CTT) with the changes in commodity derivative market. The definition of taxable commodities transaction in clause (7) of section 116 of Finance Act, 2013 is proposed to be amended to include the transactions of “sale of option in goods”.

Moreover, in order to encourage the commodity transactions, settled by physical or actual delivery of goods, it is proposed to charge CTT on the new commodity derivative products at following rates:

Transaction Rate of
CTT
Payable
by
Sale of a commodity derivative based on prices or indices of prices of commodity derivatives0.01%Seller
Sale of an option in goods, where option is exercised resulting in actual delivery of goods0.0001%Purchaser
Sale of an option in goods, where option is exercised resulting in a settlement otherwise than by the actual delivery0.125%Purchaser

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