Commodities Transaction Tax (CTT)
India's transaction tax on non-agricultural commodity futures and options — the MCX equivalent of STT, levied on metals and energy derivatives at source.
Definition
Commodities Transaction Tax (CTT) is a direct tax introduced in India's Finance Act 2013, effective from 1 July 2013, levied on the sale of non-agricultural commodity derivative contracts on recognised Indian commodity exchanges. It mirrors the structure of Securities Transaction Tax (STT) in equity markets but applies specifically to MCX (Multi Commodity Exchange) and other commodity derivatives platforms. CTT is charged on the sell side of a futures transaction, computed on the notional contract value rather than the margin deployed, and is collected by the exchange directly from the trader's account at the time of settlement or square-off. Agricultural commodities are explicitly excluded from CTT's scope under the statute.
Why it matters
CTT's introduction was controversial in the commodity trading community because it is levied on notional value — the full contract size — rather than on the margin or profit. For a commodity like gold futures on MCX, where a single lot represents 1 kg of gold with a notional value running into several lakh rupees, even a rate of 0.01% per side translates into a significant absolute rupee cost per trade. Active intraday traders in crude oil or natural gas futures — which have smaller per-unit prices but high volume — find CTT accumulates to a meaningful percentage of realised P&L.
Unlike STT, where the buy leg for options is exempt, CTT for commodity futures applies uniformly to the sell leg of every futures trade, regardless of whether the contract is held overnight or squared off intraday. There is no rebate or reduced rate for intraday positions in commodities, which is a material difference from the equity segment. This has the practical effect of compressing the net risk-reward ratio on high-frequency commodity strategies more severely than in equity futures.
From a tax treatment perspective, CTT paid is allowable as a deduction against business income for traders who treat commodity trading as a business. This is analogous to the treatment of STT, and traders must ensure their contract notes clearly show CTT as a line item — which exchanges are required to display — to support deduction claims during income tax filing.
How it works
CTT is collected by the exchange at the point of trade execution on the sell leg. The exchange nets CTT against the trader's settlement payout or deducts it from the margin account, and remits it to the government. The current rate for non-agricultural commodity derivatives is 0.01% on the sell side of futures contracts (always verify the latest Finance Act notification, as rates can be revised in Union Budgets). For commodity options — where they exist on MCX — the rate structure follows the sell-side premium convention similar to equity options under STT. The exchange issues a contract note post-trade showing brokerage, exchange transaction charges, GST, SEBI turnover fee, and CTT as separate line items.
Example
Say you buy 1 lot of gold futures on MCX (standard lot size: 1 kg) at ₹72,000 per 10 grams, implying a notional contract value of ₹7,20,000. When you sell to close the position, CTT at 0.01% applies to ₹7,20,000, giving a CTT outgo of ₹72 on that single lot for the sell leg alone. If you trade 10 such lots intraday, CTT for the day's exits totals ₹720 — before brokerage, GST, or exchange charges. In a thin-margin scalping strategy aiming for ₹200–300 per lot, CTT alone can consume a significant fraction of the gross profit, making cost-awareness essential for commodity traders on MCX.
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