Income Tax – Speculative Transactions – Recent Amendments

Section 43(5) defines speculative transactions as under:

Speculative transaction means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips.

However, there are some exceptions to this section.

Further, clause (e) of Section 43(5) was inserted by Finance Act, 2013 which reads as under:

“an eligible transaction in respect of trading in commodity derivatives carried out in a recognized association shall not be deemed to be a speculative transaction.”

Eligible transaction means any transaction carried out electronically through registered members and which is supported by a contract note.

Vide Notification no. 90/2013, 91/2013 & 92/2013, following three exchanges has been notified as recognized association (subject to publication of these notifications in the Official Gazette):

·         National Commodity and Derivatives Exchange Limited,

·         Universal Commodity Exchange Limited,

·         Multi Commodity Exchange of India limited

To conclude, trading (eligible transaction) in commodity derivatives on the aforesaid exchange will not fall under the definition of Speculative Transactions, instead it will be considered as Business Income/Loss. Major benefits arising out of the said amendment are:

·         Losses under these transactions are allowed to be set-off with any other income except salaries

·         Unadjusted losses are allowed to be carried forward for 8 assessment years and can be adjusted against and business income. (In case of speculative transactions, losses are allowed to be carried forward only for 4 years and are to be set-off with business incomes only.)

Rahul Jain

rahuljain@rpmd.in