Section 43(5) - Meaning of term "Speculative Transaction" - Income Tax - Ready Reckoner - Income Tax

Section 43(5) : Meaning of term Speculative Transaction Meaning of Speculative Transaction This section defines a speculative transaction to mean a transaction in which a contract for purchase or sale of any commodity, including stocks and shares is periodically or ultimately settled otherwise than by actual delivery or transfer of the commodity or scrip except the following: contract for raw materials in the course of manufacture to guard against loss through future price fluctuations contract for stocks and shares entered by a dealer to guard for loss of holdings through future price fluctuations contract entered by member of forward market for jobbing or arbitrage to guard for loss that may arise in course of his business An 'eligible transaction' in respect of trading in derivatives in securities and currency futures carried out on a recognised stock exchange shall not be treated as speculative transaction even if no deliveries are effected. Exception A transaction shall be regarded as 'eligible transaction' in Derivative in securities and currency futures and thus not being considered as speculative transaction only if following conditions are satisfied: It is carried out electronically on screen based system. It is carried out through a duly registered stock broker or sub-broker. It is carried out on a recognized stock exchange. It is supported by a duly stamped contract note issued by such stock broker or sub-broker or intermediary to its client the contract note indicates the unique client identity number the contract note indicates the PAN. An eligible transaction carried out in respect of trading in derivatives in commodities in a recognised association shall not be deemed to be a speculative transaction provided commodities transaction tax is chargeable to such transaction. Exception A transaction shall be regarded as eligible transaction in derivatives in commodity and thus not being considered as speculative transaction only if following conditions are satisfied: Transaction is in a commodity other than agricultural commodity It is carried out electronically on screen based system It is carried out through a duly registered member or intermediary It is carried out on a recognized association It is supported by a duly stamped contract note issued by such member of intermediary to its client the contract note indicates the unique client identity number the contract note indicates the unique trade number the contract note indicates the PAN Commodities transaction tax (CTT) Commodities transaction tax (CTT) is chargeable on all commodities except agricultural commodities. Therefore, forward contract in agricultural commodities will be regarded as speculation transaction. Forward contract on commodities other than agricultural commodities will not be regarded as speculative transaction. Forward contract on agricultural commodities will be treated as speculative transactions. Trading in agricultural commodity derivatives - Provided further that in respect of trading in agricultural commodity derivatives, the requirement of chargeability of commodity transaction tax under Chapter VII of the Finance Act, 2013 shall not apply. [Inserted vide FA 2018, w.e.f. 1-4-2019 ]