CTT exemption

Commodities Transaction Tax applies to most commodity futures and options in India — but not to all of them. Farm produce, in its raw, unprocessed form, is carved out.

The moment a raw agricultural commodity is turned into something processed — sugar refined from cane, oil extracted from soybean — that exemption falls away, and CTT applies again.

CTT is applicable on transactions in commodity futures and on options on underlying commodities that are not exempted agricultural commodities. The Finance Act, 2013 introduced CTT on all non-agricultural commodity derivatives traded on recognised exchanges, at the same 0.01% rate then applied to Securities Transaction Tax on securities futures.

The workbook is explicit about which agricultural commodities remain taxable: unprocessed agricultural commodities are exempt from CTT, but processed commodities are not. As a result, CTT is levied on derivatives of sugar, guar gum, soya oil — all processed agricultural products — as well as on all metal and energy commodity derivatives. A raw, unprocessed agricultural commodity that has not been through such processing stays outside the tax net.

A trader sells one lot of guar seed futures worth Rs 6,00,000 (contract value, illustrative) — a raw, unprocessed agricultural commodity. Because guar seed remains in its raw agricultural state, this transaction is exempt from CTT: Rs 0 is payable.

The same trader also sells one lot of guar gum futures, also worth Rs 6,00,000 (illustrative) — the processed product made from guar seed. Guar gum is a processed commodity, so this second transaction is subject to CTT, at the workbook's rate of 0.01% of the purchase value of the contract, payable by the seller — Rs 600. Despite the raw seed and its processed derivative sharing a common origin, one leg costs nothing in CTT and the other costs Rs 600.

Chapter 9, section 9.4.1 (Commodities Transaction Tax), states the exemption and immediately lists sugar, guar gum and soya oil as taxable exceptions within the broader agricultural category. Expect a question distinguishing raw/unprocessed agricultural commodities (exempt) from processed ones like sugar, guar gum and soya oil (taxable), and metal/energy commodities (always taxable).

• "Agricultural" is not automatically synonymous with "CTT-exempt." Processing status, not the broad agricultural label, decides the exemption.
• Sugar, guar gum and soya oil are the workbook's named taxable exceptions within the agricultural category — a strong exam recall point.
• All metal and energy commodity derivatives are taxable regardless of any agricultural link — the exemption is specific to unprocessed farm produce, not a general concession for any commodity type.