Commodity Transaction Tax
Also written CTT · Commodity Transaction Tax (CTT) · Commodities Transaction Tax
A transaction tax on non-agricultural commodity derivatives — 0.01% on the sale of a futures contract, paid by the seller, with separate rates for options.
In plain language
CTT is the commodity market's version of the Securities Transaction Tax. It is charged on the transaction itself, not on the profit, so it is payable whether the trade made money or lost it.
The Finance Act, 2013 introduced it on all non-agricultural commodity derivatives traded on recognised exchanges, at 0.01% — deliberately the same rate as the STT then levied on the sale of securities futures. The stated intention was parity between derivative trading in the securities market and in the commodity market. The Finance Act, 2018 extended it to options on futures.
The default rule is that the seller pays. The exception is exercise of an option, where the purchaser pays, because it is the buyer who chooses to enter the exercise deal.
How it works
CTT is computed at the end of each trading day. For each client code, all sell transactions for the day are aggregated at contract level, and the contract note the trading member issues shows the total CTT for the transactions on it.
The rate depends on what was traded and on what base:
| Taxable transaction | Chargeable on | Rate | Payable by |
|---|---|---|---|
| Sale of a commodity future or commodity index future | Price at which the commodity derivative is traded | 0.01% | Seller |
| Sale of an option on a commodity derivative, or of an option in goods | Option premium | 0.05% | Seller |
| Exercise of an option on a commodity derivative | Settlement price | 0.0001% | Purchaser |
| Exercise of an option in goods, resulting in actual delivery of the goods | Settlement price | 0.0001% | Purchaser |
| Exercise of an option in goods, settled otherwise than by actual delivery | Difference between settlement price and strike price | 0.125% | Purchaser |
Unprocessed agricultural commodity derivatives are exempt. Processed ones are not. The workbook therefore lists CTT as payable on derivatives of sugar, guar gum and soya oil, and on every metal and energy commodity.
A worked example
Two of the workbook's own computations.
1. A losing gold trade still pays. A trader buys one lot of September gold futures — lot size 1 kilogram — at Rs 50,00,000 per kg. Gold slips to Rs 49,80,000 in July and he closes out.
Trading loss = 50,00,000 - 49,80,000 = Rs 20,000
CTT (he is the seller on the closing leg)
= 49,80,000 x 0.01% = Rs 498
The Rs 498 is payable on top of the Rs 20,000 loss. CTT does not care about the outcome.
2. Where CTT sits in the total cost. A BULLDEX index futures position at Rs 15,000 with a lot size of 50 — contract value 1 x 50 x 15,000 = Rs 7,50,000.
| Rate | Rs | |
|---|---|---|
| Brokerage (illustrative) | 0.10% | 750.00 |
| CTT (seller only) | 0.01% | 75.00 |
| Exchange fees | 0.002% | 15.00 |
| Stamp duty | 0.002% | 15.00 |
| GST on brokerage + exchange fees | 18% | 137.70 |
| SEBI charges | 0.00015% | 1.13 |
| Total trading cost | 993.83 |
After brokerage, CTT and GST are the two biggest contributors to the cost of the trade — and the whole Rs 993.83 is only 0.13% of contract value.
Why NISM asks about it
Chapter 9 (Accounting and Taxation), section 9.4.1, where the full rate table appears, and Chapter 6 (Trading Mechanism), which lists CTT among the statutory charges and works the BULLDEX cost table. This is one of the most reliably examined tables in the paper: expect "who pays CTT on the sale of a commodity future" (the seller), "at what rate is CTT charged on the sale of an option" (0.05% of the premium), and a straight rate-times-value computation.
Common exam traps
- CTT is on the transaction, not on the gain. The workbook's own example is a loss-making trade that still pays Rs 498.
- The seller pays on a sale; the purchaser pays on exercise. Two different parties in the same table.
- Options are taxed on the premium at 0.05%, futures on contract value at 0.01%. Different base and different rate — mixing them is the classic error.
- Exercise leading to delivery is 0.0001% of the settlement price; exercise settled other than by delivery is 0.125% of the difference between the settlement price and the strike price. Both the rate and the base change, and the exam asks for the base as often as the rate.
- Unprocessed agricultural commodities are exempt, processed ones are not. Guar gum, sugar and soya oil are taxable; the raw agricultural produce behind them is not.
- CTT is not STT and not GST. CTT is a statutory charge on the commodity derivative transaction; GST is charged at 18% on brokerage and exchange fees, and is the larger of the two in the workbook's cost table.
Check yourself
1.On the sale of a commodity derivative, Commodity Transaction Tax is levied at 0.01 per cent and is payable by:
- a)The purchaser
- b)The seller
- c)Both parties equally
- d)The clearing member on behalf of both parties
Show the answer
Answer: (b) The seller
The CTT schedule makes the seller liable on every sale row:
Transaction Payable on Rate Payable by Sale of a commodity derivative Price traded 0.01% ⚠️ SELLER Sale of derivatives based on prices or indices of commodity derivative prices Price traded 0.01% ⚠️ SELLER Sale of an OPTION on commodity derivative ⚠️ Option PREMIUM 0.05% ⚠️ SELLER Sale of OPTION IN GOODS ⚠️ Option PREMIUM 0.05% ⚠️ SELLER Option exercised ⚠️ Settlement price 0.0001% ⚠️ PURCHASER Option in goods exercised with actual delivery Settlement price 0.0001% ⚠️ PURCHASER Option in goods exercised, settled OTHERWISE than by delivery ⚠️ Difference between SETTLEMENT AND STRIKE PRICE ⚠️ 0.125% ⚠️ PURCHASER Two patterns hold the whole table together: sales are taxed on the seller; exercises are taxed on the purchaser. And note that option CTT falls on the premium, not the contract value — which is why the 0.05% rate looks high but the rupee amount is small.
The outlier is the last row at 0.125% — an option in goods that is exercised but cash settled rather than delivered, taxed on the settlement-strike difference.
In the workbook's BULLDEX example, CTT on a Rs 7,50,000 contract is Rs 75, explicitly noted as "payable by the sellers only".
2.A trader bought one lot of gold futures at Rs 50,00,000 per kg in April and closed the position by selling at Rs 49,80,000 in July. What CTT is payable and by whom?
- a)Nothing, because the trade made a loss
- b)Rs 498, payable by the trader as seller, at 0.01% on Rs 49,80,000
- c)Rs 500, payable by the trader as buyer, at 0.01% on Rs 50,00,000
- d)Rs 2, payable at 0.01% on the Rs 20,000 loss
Show the answer
Answer: (b) Rs 498, payable by the trader as seller, at 0.01% on Rs 49,80,000
The workbook works this example in full. The loss is "Rs 50,00,000 − Rs 49,80,000 = Rs 20,000", and then:
Two things this example is designed to teach, and both are commonly missed:
First, CTT is charged on transaction value, not on profit. Option (d) applies the rate to the loss, which produces a plausible-looking Rs 2 and is entirely wrong. A loss-making trade is taxed exactly like a profitable one — option (a) is the more tempting version of the same error.
Second, he pays as SELLER even though he started as a buyer. Closing a long position means selling, and "CTT IS LEVIED ON SELLERS OF FUTURES AND OPTIONS." The tax attached to the July sale, not to the April purchase — which is why the base is Rs 49,80,000, the sale price, and not the Rs 50,00,000 he originally paid.
The general rule on who bears it: "CTT is levied on SELLERS of futures and options. HOWEVER, ON EXERCISE OF OPTIONS, IT IS LEVIED ON PURCHASER OF OPTIONS, AS THE BUYER CHOOSES TO ENTER INTO THE EXERCISE DEAL."
And how it is computed operationally: "CTT IS DETERMINED AT THE END OF EACH TRADING DAY. FOR EACH CLIENT CODE, ALL THE SELL TRANSACTIONS FOR A TRADING DAY SHALL BE AGGREGATED AT CONTRACT LEVEL", and appears on the daily contract note.
3.What is the CTT rate on the exercise of an option in goods where settlement is done other than by physical delivery, and on what value is it charged?
- a)0.0001% on settlement value, payable by the purchaser
- b)0.05% on the option premium, payable by the seller
- c)0.125% on settlement value, payable by the purchaser
- d)0.01% on the contract value, payable by the seller
Show the answer
Answer: (c) 0.125% on settlement value, payable by the purchaser
# Transaction Chargeable on Rate Payable by 1 Sale of commodity futures or index futures Contract value 0.01% Seller 2 Sale of any option Option premium 0.05% Seller 3 Exercise leading to delivery of goods Settlement value 0.0001% Purchaser 4 Exercise of options on futures Settlement value 0.0001% Purchaser 5 ⚠️ Exercise where settlement is OTHER THAN BY PHYSICAL DELIVERY ⚠️ Settlement value ⚠️ 0.125% ⚠️ PURCHASER The 0.125 per cent rate in row 5 is by far the highest in the table — over a thousand times the rate applied where the same option is exercised into delivery. The design is deliberate: it makes cash settlement of an option in goods markedly more expensive than taking the goods, which nudges the product towards its intended purpose.
The MCX Gold Mini circular of 7 July 2020 illustrates all three option situations together:
- ⚠️ "While SELLING options on goods: 0.05% ON SELLER"
- ⚠️ "On exercise LEADING TO DELIVERY: 0.0001% ON PURCHASER"
- ⚠️ "On exercise leading to NON-DELIVERY-BASED SETTLEMENT: 0.125% ON PURCHASER"
And the value on which each is computed: "the OPTION PREMIUM in respect of transaction at serial number 2, and THE SETTLEMENT VALUE in respect of transactions at serial numbers 3 TO 5."
Note the shift in who pays: rows 1 and 2 fall on the seller; rows 3, 4 and 5 all fall on the purchaser, because "the buyer chooses to enter into the exercise deal."
Where this is taught
Free preparation for NISM Series XVIRelated terms
- Option premiumThe price an option buyer pays the seller for the right the contract carries — non-refundable, and made up of intrinsic value plus time value.
- Commodities Transaction TaxIntroduced by the Finance Act 2013 at 0.01 per cent to bring parity with STT, and extended to options on futures by the Finance Act 2018.
- CTT exemptionDerivatives on unprocessed agricultural commodities are exempt from CTT; processed ones are not — so sugar, guar gum, soya oil and all metals and energy contracts are taxed.
- CTT on exerciseWhere an option is exercised, the tax shifts from the seller to the purchaser, because the buyer chooses to enter into the exercise deal.
- Goods and Services TaxA destination-based tax on consumption levied at all stages from manufacture to final consumption, with credit of taxes paid at earlier stages available as setoff, so that only value addition is taxed.
- SEBI turnover feesRs 15 per Rs 1 crore of broker turnover, or 0.00015 per cent, reduced to Re 1 per crore for agricultural commodities.
- Uniform stamp duty regimeEffective 1 July 2020, exchanges levy stamp duty on brokers based on client trades and deposit it with the state in which the buyer is registered, tracked from Uniform Client Code data, at a uniform Rs 2 per Rs 1 lakh —…