Commodity Transaction Tax
Also called: CTT · Topic: Taxation: Direct and Indirect Taxes, GST and Global Tax Issues · NCERT: Beyond NCERT
Meaning
Commodity Transaction Tax (CTT) is a tax on the value of trades in commodity derivatives on recognised commodity exchanges. A commodity derivative is a contract whose price depends on a commodity such as gold, crude oil or copper. CTT was introduced in 2013 and is charged mainly on non-agricultural commodity futures, while farm commodities are largely kept out. It does for commodity markets what the Securities Transaction Tax (STT, 2004) does for stock markets. Because it is charged on every trade, it works like a financial transaction tax (FTT): it makes frequent short-term betting costlier and also brings in revenue.
Example
A trader buys and later sells gold futures on MCX, India's main commodity exchange. CTT is charged on the value of the contract traded, not on the profit. The trader pays it even if the trade ends in a loss.
Don't confuse with
- Securities Transaction Tax (STT): both are taxes on trade value. STT applies to shares and their derivatives on stock exchanges. CTT applies to commodity derivatives on commodity exchanges.
- Capital gains tax: this is a tax on the profit from selling an asset. CTT is charged on the transaction value, whether the trade makes a profit or a loss.