National Stock Exchange has received approval as ‘Recognised Association’ for commodities segment and hence income generated by traders in commodity derivatives on the exchange platform will be treated as business income. Further, all the benefits and deductions under the Income Tax provisions relating to business income including carried forward and set-off of losses shall be available to traders.
The approval is required as per section 43(5)(e) of the Income Tax Act, 1961, which states that transactions in relation to commodity derivatives shall be taxed as business income provided the same has been done on 'Recognised Association'.
The recognition is subject to approval by Central Board of Direct Taxes and fulfilling specified conditions. CBDT pursuant to the application made by NSE has observed that NSE has complied with all the necessary conditions and thus accorded the approval.
The main advantage of this new law is that it will benefit traders in relation to trading in commodity derivatives segment of the NSE as the derivative income will be treated as business income.
The impact of treatment of commodity derivative transactions as not being speculative is that the losses in commodity derivative transactions would be now treated as in the same manner as any other business losses and would , therefore, be capable of being set off against any other income, except salaries. . Commodity derivative losses can, therefore, now be set off against security derivative profits, share trading income and income from trading in physical commodities on a delivery basis.