Govt to treat agri derivatives trading as non-speculative

To promote hedging in agri- commodity futures market, the government in the Budget 2018 proposed to come out with an amendment to a law to treat agri-commodity derivatives trading as 'non-speculative'.
The proposed amendments will be made effective from April 1, 2019, it added.
Presently, commodity derivatives trading that attracts commodity transaction tax (CTT) is considered as a non- speculative transaction.
However, agri commodities are exempted from CTT and derivatives trading in them is considered as speculative.
"Since no CTT is paid, the benefit of clause (e) of the provision to clause (5) of the section 43 is not available to transaction in respect of trading of agricultural commodity derivatives and accordingly, such transactions are held to be speculative transactions," the government said.

To encourage participation in agri derivatives, the government proposed to "amend the provisions of clause (5) of section 43 to provide that a transaction in respect of trading of agricultural commodity derivatives, which is not chargeable to CTT, in a registered stock exchange or registered association, will be treated as non-speculative transaction."

These amendments will take effect from April 1, 2019 and will, accordingly, apply in relation to assessment year 2019- 20 and subsequent assessment years, it added.
Welcoming the move, SMC Investments and Advisors Chairman and Managing Director D K Aggarwal said, "With this proposed amendment, the profit from agri-derivatives will not be treated as speculative. It will be treated as business income or loss."

So far, many were avoiding hedging as the agri-derivatives trading was treated as "speculative transaction".
"Now, we will see larger participation from processors and manufacturers. This will give a boost to volumes of commodity exchanges and see more participation from corporates," he added.
MCX, NCDEX, NMCE, ICEX, are the leading national level commodity exchanges in the country.