InvestorQ : In the current year, I started trading in the commodity markets and did a bit of delivery and speculation. How would these profits get taxed? Is it same as equity F&O?
indhumathi Sayani made post

In the current year, I started trading in the commodity markets and did a bit of delivery and speculation. How would these profits get taxed? Is it same as equity F&O?

Answer
image
2 years ago
Follow

As per the Indian Income Tax law there is no differentiation between the equity F and O and the commodity or currency future and option. F&O transactions are defined as business income only the turnover needs to be calculated on the future and option in the same way as equity f and O and in case the total return is less than 6% then the books of account needs to be audited or if the transaction volume that is the revenue is more than one crore then also you will be required to conduct tax audit. Future and option transactions are covered as business income irrespective of the volume.

CA Prashant Agarwal

5 Views

image
shrinidhi Rajan answered.
2 years ago
Follow

While commodity markets are also regulated by SEBI, there is a difference between the ways their gains are taxed. Let us quickly look at the important aspect of how commodity market transactions are taxed in the Indian context.

The first thing in commodity markets is to distinguish between speculative and non-speculative transactions. Here is how you do it. The taxation of commodity trading profits will be largely on the lines of F&O trading in terms of classification between speculative and non-speculative. However, there is a difference. What happens in the cash markets is that only intraday equity transactions are classified as speculative whereas transactions in futures and options on stocks and indices are classified as non-speculative. That means these are delivery transactions. However, there is a change in this aspect when it comes to commodities.

In this case, you are permitted to speculate on commodities and also take physical delivery on these commodities. Therefore, any transaction that is without the intention of taking delivery in commodities, irrespective of the nature, will be classified as a speculative transaction. On the other hand, any transaction with the intention of taking delivery will be classified as business income. There is really no question of capital gains in the case of commodity transactions.

Is it possible for a trader to show small or minimal gains and losses in commodities as capital gains? When it comes to commodities there is no question of long term capital gains since there are no transactions beyond one year in commodities trading. In the case of F&O in equities and indices, small traders have the option to show the income as capital gains and the larger traders need to show it as business income. However, there are few basic differences with respect to commodities.

Firstly, this capital gains rule does not apply to speculative transactions and only to non-speculative delivery transactions in commodities. Secondly, like in the case of equities whether one can show this short term capital gains depends on factors like the total volumes done, share of commodity trading in your overall activity etc. If your transactions in commodities are few and far between, then you can show the occasional transaction as capital gains / losses. However, if the transactions are frequent and if the income from commodity trading is a major chunk of your total income then it is better to show that as your business income rather than as capital gains. To avoid any unnecessary questions and queries from the tax man, it is more preferable to treat as other income than as capital gains.

3 Views

image
2 years ago
Follow

As per the Indian Income Tax law there is no differentiation between the equity F and O and the commodity or currency future and option. F&O transactions are defined as business income only the turnover needs to be calculated on the future and option in the same way as equity f and O and in case the total return is less than 6% then the books of account needs to be audited or if the transaction volume that is the revenue is more than one crore then also you will be required to conduct tax audit. Future and option transactions are covered as business income irrespective of the volume.

CA Prashant Agarwal

2 Views