Commodity futures may get I-T sops on losses

The Centre is expected to amend the Income Tax Act, 1961, to enable speculative losses from futures trading in commodities to be offset against profits from other normal trading activity.

The national commodity exchanges together had appealed to the government in this regard.

Currently any organisation or trader can offset profits or losses from futures trading during any year against profits or losses from spot trading or any other normal business activity for the same year.

This is, however, permissible only for hedgers and does not extend to speculators. "Enabling simultaneous offsetting of transactions in the trade will not only protect the interest of genuine hedgers, but also prevent the evasion of tax by speculators, in the name of hedging," said D S Kolamkar, director of the Forward Markets Commission.

Speculative losses from any year cannot be offset against profits from normal business during that year, even though speculative profits are treated as part of the organisation's taxable income.

The organisation in question can carry forward its speculative losses for a particular year to offset it against speculative profits for the subsequent year, in the process, reducing its taxable income for that year. This is permitted for up to eight years.

According to the deputy managing director of the Multi Commodity Exchange, Joseph Massey, the only way for traders to offset losses from speculation now is to show that these were incurred due to hedging.

"It is, however, difficult for traders to convince the income-tax officials that the income has been derived from hedging and not speculation. Such an amendment will treat both hedging and speculation as normal trading activity for the purposes of computing taxable income of a trader," he said.

He added that once the distinction goes, there would be an automatic pick-up in trading volumes.

"With the increase in speculative activity, the market will become more liquid," he said.