Commodity Transaction Tax (CTT)

The Commodity Transaction Tax (CTT) is a transaction-level tax levied on the sale or purchase of certain non-agricultural commodity derivatives on recognised commodity derivative exchanges in India. CTT was introduced by Chapter VII of the Finance Act, 2013 with effect from 1 July 2013 and is structurally analogous to the Securities Transaction Tax (STT) that applies to equity and equity-derivative transactions. CTT is collected by the stock broker or the commodity derivative exchange at the time of the transaction and remitted to the Central Government on behalf of the parties.

The principal commodity derivative exchanges to which CTT applies are the Multi Commodity Exchange (MCX) and the National Commodity & Derivatives Exchange (NCDEX). CTT was introduced as part of the broader 2013 tax-policy push to bring commodity derivative trading into the same tax framework as equity-derivative trading, with the parallel introduction of the non-speculative classification for commodity derivative transactions under Section 43(5)(e) of the Income Tax Act, 1961 , also through the Finance Act 2013.

CTT is operationally important to the commodity-derivative ecosystem in three respects:

1. Cost layer on every trade: CTT increases the all-in cost of commodity derivative trading for hedgers, speculators, and arbitrageurs. The cost is small per trade but accumulates over high-frequency strategies.

2. Gateway to non-speculative classification: Payment of CTT is a condition for the Section 43(5)(e) non-speculative classification. Without CTT, the derivative transaction would default to the speculative classification under the residual Section 43(5) provision.

3. Business-expense deductibility: CTT is a fully-deductible business expense under Section 36(1)(xv) (or the broader Section 28/Section 37 framework) for trading-business taxpayers. The deductibility offsets the cash-flow cost of CTT for non-speculative-business taxpayers.

The CTT framework has remained substantially stable since its 2013 introduction, with minor rate adjustments in 2018 and 2024 affecting specific transaction types. The principal contemporary debates centre on the inclusion or exclusion of additional commodities (the current framework explicitly excludes agricultural commodities), the appropriate rates for option-premium-based transactions, and the harmonisation with the STT framework.

Statutory framework

Chapter VII of the Finance Act 2013

CTT was introduced by Chapter VII of the Finance Act, 2013 as a new transaction-level tax under the central direct-tax framework. The Finance Act 2013 amendments simultaneously:

• Introduced CTT through new Sections 116 to 132 of the Finance Act 2013.
• Inserted Section 43(5)(e) into the Income Tax Act, 1961 to classify commodity derivative transactions as non-speculative business income (provided CTT was paid).
• Inserted Section 36(1)(xv) in the Income Tax Act to allow deduction of CTT as a business expense.

The 2013 framework was modelled on the existing Securities Transaction Tax (introduced by the Finance Act 2004) framework, with parallel provisions for commodity derivatives.

Charging provision

The CTT charging provision under Section 117 of the Finance Act 2013 levies CTT on every sale of commodity derivative on a recognised stock exchange (after the post-2015 unification of commodity-derivative exchanges with stock exchanges under SEBI). The charge applies at rates specified under Section 118, computed on the transaction value of the commodity derivative.

The transaction value for CTT purposes is the price at which the commodity derivative is traded multiplied by the contract lot size. For futures contracts, this is the futures price multiplied by the contract size. For options contracts, this is computed on the option premium (or the settlement price at exercise, depending on the option type).

Definition of taxable commodity derivative

For CTT purposes, a commodity derivative includes:

• Commodity futures contracts: Standardised contracts traded on recognised commodity-derivative exchanges.
• Commodity options contracts: Standardised options on commodity underlyings, including options on commodity futures and options on commodity spot.

Following the 2015 merger of the Forward Markets Commission (FMC) with SEBI and the migration of commodity-derivative regulation under SEBI, “recognised stock exchange” for CTT purposes now includes MCX , NCDEX, and other SEBI-recognised commodity-derivative exchanges.

Excluded commodities

A critical structural feature of CTT is the exclusion of agricultural commodities from the levy. Section 117 of the Finance Act 2013 read with the Schedule and subsequent CBDT notifications specifies an exclusion list. Agricultural commodities to which CTT does NOT apply include:

• Wheat, rice, barley, and other cereals.
• Pulses (chana, tur, urad, moong, masoor).
• Edible oilseeds and oils (soybean, mustard, sunflower, palm oil, groundnut).
• Spices (cardamom, pepper, turmeric, jeera).
• Cotton, jute, and other natural fibres.
• Sugar, gur, and related sweeteners.
• Tea, coffee, and other plantation crops.

The agricultural exclusion was a structural concession to maintain the existing cost structure of agricultural-commodity hedging by farmers, traders, and the agricultural ecosystem. The policy intent was to bring price-discovery transparency to non-agricultural commodity markets (metals, energy, bullion) without imposing additional cost on the agricultural-commodity hedging.

Covered (CTT-paying) commodities

Non-agricultural commodities on which CTT applies include:

• Bullion: Gold, silver, and other precious metals (in their standardised contract forms such as gold futures, gold mini futures, silver futures, silver micro futures).
• Base metals: Copper, aluminium, lead, zinc, nickel.
• Energy: Crude oil, natural gas, brent crude.
• Other industrial commodities: Other commodities specifically notified by CBDT as falling outside the agricultural-exclusion list.

The CTT applicability is determined contract-by-contract based on the underlying commodity and the published notifications.

Rates and computation

Operative rates

The principal CTT rates under Section 118 of the Finance Act 2013 (as amended through 2026):

The rates have been adjusted from time to time through subsequent Finance Acts to align with evolving market structure. The rate adjustments through 2024 narrowed the differential between option-premium-based CTT and futures-based CTT.

Worked example

Consider an MCX trader executing the following transactions in a financial year:

Total CTT for the year: Rs 648 (approximately).

The CTT amount, while small in absolute terms, accumulates substantially for active commodity-derivative traders executing thousands of transactions per year.

Computation of transaction value for options

The computation of CTT on options is structurally more complex than on futures because options have two relevant value points: the option premium (charged at sale) and the settlement value (charged on exercise). The Section 118 framework treats these as separate taxable events:

1. At sale: When the option is sold (either as an opening sale or as a closing buy-back), CTT is computed on the option premium paid or received.
2. At exercise: When the option is exercised at expiry, CTT is computed on the settlement price of the underlying.

Most retail options trades involve a sale and a subsequent square-off without physical exercise, so the option-premium-based CTT is the principal charge encountered.

Collection and remittance

Broker as collection agent

CTT is collected by the stock broker at the time of the commodity-derivative transaction. The broker computes the applicable CTT, debits the client’s trading account, and remits the aggregate amount to the Central Government through the recognised stock exchange.

The collection-and-remittance mechanism follows the same model as STT collection in equity transactions. The broker-as-collection-agent framework ensures comprehensive collection coverage without requiring the trader to file separate CTT-payment returns.

Remittance timeline

Brokers must remit CTT to the Central Government on a monthly basis, with the remittance for transactions occurring in a calendar month due by the 7th day of the following month. The remittance is accompanied by a statement of transactions in Form 2A under the CTT rules.

Failure to remit on time attracts interest at 1 per cent per month on the outstanding amount.

Broker contract notes

The CTT amount applicable to each transaction is itemised on the broker’s contract note issued for the transaction. The contract note shows the CTT as a separate line item alongside other transaction costs (brokerage, exchange transaction charges, GST, SEBI turnover fee, stamp duty ).

The line-item disclosure on contract notes provides the documentary trail required for the trader to claim CTT as a deductible business expense in their income-tax return.

Annual statement and Form 26AS

Brokers are required to upload aggregate CTT-paid data to the SEBI/exchange systems, which is then reflected in the Annual Information Statement (AIS) for tax-reporting purposes. The AIS reflection allows the Income Tax Department to cross-verify the CTT claimed as a business expense in returns.

Interaction with income tax

Section 43(5)(e) non-speculative classification

The principal interaction of CTT with the broader income-tax framework is through Section 43(5)(e) of the Income Tax Act, 1961 , which provides that an “eligible transaction” in commodity derivatives on a recognised commodity-derivative exchange (specifically, chargeable to CTT) is NOT a speculative transaction for income-tax purposes.

The Section 43(5)(e) classification is the gateway to:

• Computation of commodity-derivative trading P&L as non-speculative business income.
• Set-off of commodity-derivative trading losses against other business income (other than salary).
• Carry-forward of unabsorbed losses for 8 years.
• Application of the standard Section 44AB tax-audit threshold (Rs 1 crore standard, Rs 10 crore for predominantly digital businesses) instead of the speculative-business audit threshold.

The non-speculative classification is operationally equivalent to the Section 43(5)(d) classification for equity-derivative transactions on recognised stock exchanges and produces parallel tax-treatment outcomes. The detailed framework is at the F&O taxation in India reference.

Section 36(1)(xv) deduction

Section 36(1)(xv) of the Income Tax Act, inserted by the Finance Act 2013 alongside the CTT introduction, expressly allows the deduction of CTT paid by an assessee as a business expense in computing the profit and gains from business.

The deduction operates in addition to the deduction of related transaction costs (brokerage, exchange transaction charges, GST, SEBI turnover fee, stamp duty), all of which are deductible business expenses under Section 28/Section 37.

Documentary requirements

To claim the CTT deduction, the assessee must:

• Maintain contract notes from the broker showing the CTT amount per transaction.
• Maintain aggregate CTT-paid statements from the broker for the full financial year.
• Cross-verify the aggregate CTT figure with the Annual Information Statement (AIS).
• Report the CTT amount as a separate line item in the business-expense statement in ITR-3 .

Exchanges and market scope

MCX (Multi Commodity Exchange)

The Multi Commodity Exchange is the largest commodity-derivative exchange in India by trading volume and the principal exchange to which CTT applies. MCX commenced operations in November 2003 and has substantively grown to be one of the largest commodity-derivative exchanges globally by traded volume.

MCX commodity derivative contracts subject to CTT include:

• Gold futures (1 kg, 100 g, 8 g variants).
• Silver futures (30 kg, 5 kg, 1 kg variants).
• Crude oil futures and brent crude futures.
• Natural gas futures.
• Base metals futures (copper, aluminium, lead, zinc, nickel).
• Energy options and bullion options on MCX where listed.

MCX agricultural commodity contracts (where any) are excluded from CTT.

NCDEX (National Commodity & Derivatives Exchange)

NCDEX is the second principal commodity-derivative exchange in India, with a focus on agricultural and agri-commodity derivatives. Because NCDEX’s principal contracts are in agricultural commodities, the bulk of NCDEX transactions are exempt from CTT.

NCDEX-traded non-agricultural commodities (where any) are subject to CTT.

Other SEBI-recognised commodity exchanges

Following the 2015 SEBI-FMC merger, all commodity-derivative exchanges fall under SEBI’s regulatory jurisdiction. Other smaller SEBI-recognised commodity exchanges have similar CTT applicability based on the commodity classification.

Historical context

Pre-2013 commodity-derivative tax framework

Prior to the Finance Act 2013, commodity derivative transactions were classified as speculative business income under the residual Section 43(5) provision of the Income Tax Act. The speculative classification had restrictive set-off rules (speculative losses could only be set off against speculative gains) and prevented commodity-derivative-trading taxpayers from broader loss treatment.

The pre-2013 framework also lacked the parity with equity-derivative trading that the 2013 reforms established. Equity derivatives had been classified as non-speculative since the Finance Act 2005 (Section 43(5)(d) insertion), but commodity derivatives remained in the residual speculative classification.

Forward Markets Commission and the 2015 merger

The Forward Markets Commission (FMC) was the regulator of commodity-derivative markets from 1953 until its merger with SEBI in September 2015. The merger followed the 2013 to 2014 financial-market reform consultations and was implemented through the Finance Act 2015 amendments.

Post-merger, all SEBI-recognised commodity-derivative exchanges fall within the broader SEBI regulatory framework, and commodity derivatives are formally classified as securities under the Securities Contracts (Regulation) Act, 1956 (amended in 2015 to include commodity derivatives in the definition).

The post-merger institutional structure simplified the regulatory framework for cross-asset trading firms operating across equity, commodity, and currency derivatives.

CTT introduction rationale

The introduction of CTT in 2013 had several stated policy rationales:

1. Parity with STT: Aligning commodity-derivative trading taxation with equity-derivative trading, where STT had applied since 2004.
2. Tax revenue: Generating tax revenue from a growing commodity-derivative market.
3. Curbing speculation: Modest dampening of speculative activity in non-agricultural commodity derivatives.
4. Price-discovery transparency: Encouraging better price-discovery infrastructure on recognised exchanges.

The agricultural-commodity exclusion was a separate policy choice driven by the concern that imposing CTT on agricultural derivatives would undermine the price-discovery role those markets play for the agricultural sector.

Recent developments

Finance Act 2018 rate adjustments

The Finance Act 2018 made adjustments to the CTT rates on options (specifically on options on commodity futures), narrowing the differential between options-on-futures CTT and options-on-commodity CTT. The 2018 amendments aligned the CTT structure more closely with the post-2018 STT structure for equity options.

Finance Act 2024 amendments

The Finance (No. 2) Act 2024 made parallel amendments to STT (notably the increase in STT on F&O sale of options) and reviewed the CTT rate structure, though substantive CTT rate changes in 2024 were limited. The 2024 framework retained the principal CTT structure with refinements to administrative provisions.

CBDT clarifications on agricultural-commodity scope

CBDT has periodically issued clarifications on the boundary of the agricultural-commodity exclusion, particularly in relation to processed agricultural products (refined oils, processed sweeteners). The clarifications have generally maintained the agricultural exclusion for primary agricultural commodities while applying CTT to processed industrial commodities.

Trading-platform integration

Brokers including Zerodha have integrated CTT computation into their commodity-derivative trading platforms, with contract notes itemising the CTT alongside other transaction costs. The STT and CTT on Zerodha reference covers the broker-specific computation and reporting.

Algorithmic and high-frequency trading concerns

The growth of algorithmic and high-frequency trading in commodity derivatives has produced concerns about the cumulative CTT cost on high-volume strategies. Industry submissions have periodically suggested rate reductions or volume-based discounts for high-volume traders, though these submissions have not been adopted.

Criticism and debates

Asymmetric agricultural exclusion

The agricultural-commodity exclusion has been criticised for creating an asymmetric cost structure across commodities. Industrial-commodity traders argue that the exclusion disadvantages industrial-commodity trading relative to agricultural-commodity trading. The counter-argument, which has prevailed, is that the agricultural exclusion serves the distinct policy goal of preserving cost-effective hedging for the agricultural sector.

Option-premium-based CTT

The 0.05 per cent CTT on commodity-options premium has been argued to be high relative to international benchmarks. Industry submissions have suggested rate reduction to align with international commodity-derivative tax structures (US futures and options have substantially lower transaction-level taxes).

Cost cumulation on high-frequency strategies

The cumulative CTT cost on high-frequency commodity-derivative strategies (where transaction volumes are large relative to position sizes) has been argued to disadvantage Indian high-frequency-trading firms relative to international competitors operating in lower-tax jurisdictions.

CTT and the small-trader cohort

For small commodity-derivative traders, the cumulative CTT alongside brokerage, exchange transaction charges, GST, and SEBI turnover fee produces an all-in cost structure that has been argued to be disproportionate to the position sizes. The 2024 SEBI investor-protection consultations have noted the high cumulative-cost concern but have not produced direct CTT reform.

Harmonisation with STT

Industry commentary has periodically suggested harmonising the CTT and STT frameworks into a unified securities-transaction-tax framework given the post-2015 unification of commodity-derivative regulation under SEBI. The harmonisation has not been adopted; CTT remains a separate levy with its own administrative framework.

See also

• Securities Transaction Tax
• F&O taxation in India
• Section 44AB
• Income tax in India
• Capital gains tax in India
• Multi Commodity Exchange (MCX)
• SEBI Act 1992
• SEBI Investment Management Department
• FEMA
• Stamp duty stockbroker
• Permanent Account Number
• Annual Information Statement
• Zerodha
• STT and CTT on Zerodha
• ITR-3
• Mutual fund
• Gold ETF India
• Gold ETF vs SGB vs Gold MF
• Gold silver ETF taxation
• National Stock Exchange
• Bombay Stock Exchange
• How to trade gold mini futures on Zerodha
• How to trade silver micro futures on Zerodha

References

1. Finance Act, 2013, Chapter VII, Sections 116 to 132, introducing the Commodity Transaction Tax.
2. Income Tax Act, 1961, Section 43(5)(e) and Section 36(1)(xv), inserted by the Finance Act 2013.
3. Finance Act, 2018, amendments to Section 118 of the Finance Act 2013.
4. Finance (No. 2) Act, 2024, amendments to transaction-tax framework.
5. Central Board of Direct Taxes (CBDT) notifications and circulars on CTT applicability and agricultural-commodity exclusion.
6. Securities Contracts (Regulation) Act, 1956, post-2015 amendments including commodity derivatives within the definition of securities.
7. SEBI, “Master Circular for Commodity Derivatives,” Securities and Exchange Board of India.
8. Multi Commodity Exchange of India Limited, “Trading and Contract Specifications,” various contract circulars.