The committee on tax treatment of speculative transactions has decided to include trading in commodity futures also for allowing tax set-offs to brokers.
The panel, set up by the revenue department, is expected to give its recommendations soon, on the modalities of allowing futures trading on stocks to be treated as a genuine business activity instead of speculative.
This has a been a major demand of market operators as they felt that losses made in derivatives should be allowed to be set off against profits made in other business. They had claimed that investment in the market was proving to be costly as brokers had no way to hedge losses in futures with profits booked elsewhere. The ministry has been sympathetic to this point of view.
The inclusion of commodities in the mandate of the committee will meet a major demand of commodities traders who have claimed that futures trading in commodities too cannot take off without the tax set-off.
As per the current provisions of the IT Act, any income or loss arising out of futures trading, including commodities, cannot be adjusted against other business profit or loss as the case may be.
Under Section 43 (5) of the Act, speculative transaction is defined as one where the purchase and sale of scrips are settled without the actual delivery of the shares. But in futures market the promise to sell or buy at a future date is the very underpinning of the market.
Recognising the problem, the revenue department set up the committee after the budget this year to rework the definition of speculative transactions. The committee's report was expected to be finalised earlier for possible incorporation in the mini budget of finance minister Jaswant Singh.
But now while the report is expected to be posted on the web shortly, the relevant changes would in all possibility be taken on board only in the next budget.
The committee is apparently of the opinion that no change in tax treatment of speculative transactions will serve its purpose unless the burgeoning field of commodity trading is also considered.
The latter has argued that since the Commodity Exchanges are modernised and Forward Markets Commission is more vigilant, no operator can manipulate his accounts through fictitious transactions in commodities to earn tax breaks.
It is expected that the committee will recommend that only transactions in specified liquid shares and derivatives traded under the electronic screen based trading system qualify for setting off of losses against other profits.
It is also expected that losses in trading of shares other than those in the specified class would be allowed to be set off, but only against trades in the same class of scrips.
To ensure that commodities traders did not misuse the facility, brokers have argued that the income-tax department instead of asking the assessee to show the position in physicals, ask the exchanges to authenticate whether the transactions claimed have been duly registered with them or not.
