Government of India has proposed the imposition of commodity transaction tax on derivatives sales and purchase that are future dated. Government had proposed this act 5 years ago with an intention of earning revenue from various commodities, but withdrew it later.
Commodities transaction tax includes all business dealings in terms of commodities that includes gold, silver, securities, bonds, and others non farming commodities. The other commodities that fall into this category are as follows:
- Precious items like gems, diamonds, rare stones, gold, and others.
- All major energy products.
As per the act, future transaction means the contract that is intended to be entered in future by a buyer and seller, or between companies and others. By imposing such types a tax on tax payer individual or companies the government has tried to curb the possibility of speculation.
The following points should be ensured for the same:
- The dealing is future dated and the nature of commodity is mentioned in the Annexure of Governments act.
- The transaction was agreed to in the financial year.
- There should a future date for the execution of such a deal.
Today more than 80 percent of the transactions are future dated and the contract entered mentions the time period for the execution of such an agreement. As per the law the commodity also includes heavy and light weight metals, which are required for productions.
The government has exempted certain commodities or transaction from the purview of commodity transaction tax, which are as follows:
- Refineries products like oil, petroleum, and others as the future date cannot be predicted in this case.
- Various mining products.
In case of other commodities like gold, platinum, and silver are directly related to the International market trends. Speculation trading is nothing, but a paper contract, which is expected to be entered in future. It is very different from hedger that is nothing but a speculative loss.
One needs to have proper understanding of speculative business, in order to compute the commodity transaction tax. Government has included some of the high-end agricultural products within the limits of CTT. In this type of business, an individual or a business houses dealing with shares, bonds, and other future dated commodities accept or make payments towards the procurements and treat it as an investment.
It is very important that the tax payer maintains a book of accounts and it is audited by a certified accountant as per the Income tax act. Government is intending to tax any income, profit, gains, or interest arising by funding in such investments. It is essential for the government to draft plans for a healthy physical market, in order to have a transparent commodity taxation system. Government is drafting policies which can make it successful, as it can help them to generate more tax revenue which can be used for the development of the country. It will also help in taxing indirect income.
Procedure for Charging Commodity Tax in India