Profit / loss for sale purchase of commodities

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This query is : Resolved

Pramod Kumar Jain (Querist)

02 August 2010 Profit / Loss from trading of commodities is speculative transaction or non- speculative transaction and under which head to be taxable and loss can be set off any other income and clerfication of Section 73

Aditya Maheshwari

Aditya Maheshwari (Expert)

02 August 2010 Profit / Loss from trading of commodities is speculative transaction and loss cannot be set off any other income as per Explanation to Section 73.

VINOD ARORA

VINOD ARORA (Expert)

02 August 2010 Speculative transaction is one which is settled without actual delivery. As per Section 43(5) of the Income Tax (IT) Act, 1961, there are three basic ingredients of speculative transactions.
* The contract is for purchase or sale of stock, share or commodity.
* The contract is periodically or ultimately settled.
* The settlement is completed without actual delivery or transfer of commodity or scrips.

Hedging contracts and trading in the Futures & Options market are exceptions to this section and are now not considered as speculative transactions.

The derivatives transactions should be carried out on a stock exchange recognised by the Securities and Exchange Board of India. Recognition for derivatives trading has been given only to the National Stock Exchange and the Bombay Stock Exchange.

As the MCX is not a recognised stock exchange, profit/loss in commodity trading will be treated as speculative profit/loss. Under Section 73 of the IT Act, speculative loss can be set off only against speculative gain. The balance can be carried forward till four AYs.

Aditya Maheshwari

Aditya Maheshwari (Expert)

02 August 2010 In addition to above MCX Stock Exchange of India Ltd. is also a recognised stock exchange in India except BSE & NSE on which currency futures are traded.

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