Understanding Commodity transaction tax

28 Feb 2023|

1 min read |

by ICICI Securities Team

Introduction

Whenever you buy any product or service, you are paying a tax for it, which will go to the government. The same applies to commodity trading also in the form of Commodity Transaction Tax (CTT). This tax was introduced in 2013-14 budget by Government of India. It came into force with effect from 1^st July 2013. Commodity Transaction Tax (CTT) is similar to Securities Transaction Tax, which applies for trading in the stock market. Commodity transaction tax is a direct tax where you are paying this tax for each and every trade.

What is commodity transaction tax?

Commodity transaction tax is the tax levied on trading of commodity derivatives i.e., futures and options. This tax is applicable only for sellers of commodity derivatives and this tax is derived by the actual size of the contract.

This tax is applicable on non-agricultural commodities such as gold, silver, crude oil, natural gas, aluminium, copper, lead, nickel and zinc while agricultural commodities are exempted from this tax. Additional to Commodity Transaction Tax (CTT), Commodity derivatives also attract exchange transaction charges, SEBI charges, Goods and Services Tax (GST), and stamp duty from respective state governments where the investor is residing.

Source: Multi Commodity Exchange of India

How Commodity Transaction Tax is Levied

CTT is largely applicable on sale of commodity transactions at the rate mentioned below.

Taxable commodity transaction	Payable on	Rate	Payable by
Sale of a commodity derivative (except exempted agricultural commodities as mentioned below)	Price at which the commodity derivative is traded	0.01 per cent	Seller
Sale of an option on commodity derivative	The option premium	0.05 per cent	Seller
Sale of an option on commodity derivative, where option is exercised	The settlement price	0.0001 per cent	Purchaser

Source: Multi Commodity Exchange of India

To know how CTT and all other applicable charges are calculated while trading Commodities, click here.

Conclusion

An investor should know about CTT and all other applicable charges before trading in Commodities. CTT is the largest component among all those applied charges. Commodity Futures and Options traders can benefit from trading with price movement covering brokerage, exchange transaction charges, SEBI charges, GST, CTT and stamp duty. Earlier, only futures were allowed in commodities and now, options and indices are performing well. Amongst futures, options and indices, options are attracting investors attention therefore the options volumes are growing rapidly exceeding the futures volumes.

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