Commodities Transaction Tax (CTT)
Commodities transaction tax (CTT) is a tax similar to Securities Transaction Tax (STT), levied in India, on transactions done on the domestic commodity derivatives exchanges.Vide Finance Act, 2016 it was stipulated that transactions carried out in a recognized commodity exchange located in an International Financial Center, where the payments are carried out in terms of foreign currency, would be exempt from the payment of CTT.
The concept of CTT was first introduced in the Union Budget 2008-09 (para 179 of the Budget Speech).The Government had then proposed to impose a commodities transaction tax (CTT) of 0.017% (equivalent to the rate of equity futures at that point of time). However, it was withdrawn subsequently as the market was nascent then and any imposition of transaction tax might have adversely affected the growth of organised commodities derivatives markets in India. This has helped Indian commodity exchanges to grow to global standards(MCX is the world’s number 3 commodity exchange; Globally, MCX is No. 1 in Gold and Silver, No. 2 in Natural gas and No. 3 in Crude Oil)
In the Union Budget 2013-14(para 149 of the Budget Speech) CTT has been re-introduced, however, only for non-agricultural commodity futures at the rate of 0.01% (which is equivalent to the rate of equity futures). Alongwith this, transactions in commodity derivatives have been declared to be made non-speculative;and hence for traders in the commodity derivative segment, any losses arising from such transactions can be set off against income from any other source (similar provisions are applicable for the securities market transactions).
A separate provision for CTT has been made in the Finance Act, 2013 (Chapter VII).
The CTT rules were notified by Department of Revenue, Ministry of Finance on 19 June 2013 (Notification No. 46 of 2013; S.O. 1769 (E)), with effect from 1 July 2013. As per the notification, only 23 agricultural commodities were exempted from CTT. However, in February 2015 a revised list of 61 commodities was notified including certain commodities where trading is currently not taking place. Like STT, the commodity exchanges have been entrusted to collect CTT on behalf of Government of India.
Like all financial transaction taxes, CTT aims at discouraging excessive speculation, which is detrimental to the market andto bring parity between securities market and commodities market such that there is no tax / regulatory arbitrage. (Futures contracts are financial instruments and provide for price risk management and price discovery of the underlying asset (commodity / currency/ stocks / interest). It is therefore essential that the policy framework governing is uniform across all the contracts irrespective of the underlying to minimize the chances of regulatory arbitrage.) The proposal of CTT also appears to have stemmed from the general policy of the Government to widen the tax base.