Commodities Transaction Tax (CTT)

The intuition

When STT was introduced on equities in 2004, commodity exchanges were outside its scope. The Finance Act 2013 closed that gap with a parallel levy for commodity derivatives, deliberately limited to non-agricultural contracts such as metals and energy so that hedging by farmers and agri-processors would not be taxed. The tax is a percentage of value, collected by the exchange at the time of trade, and settled through the broker, so it appears on the contract note exactly as STT does on an equity trade.

The design mirrors equity STT in one important way: it is charged on the seller for futures and for traded options, so the buyer of a crude oil option pays nothing on entry. It differs in level: the futures rate is a fifth of the equity futures rate, and the exercise rate is nominal.

The rate table (section 117, Finance Act 2013 as amended)

Taxable commodities transaction	Rate	Charged on	Paid by
Sale of a commodity derivative (futures), non-agricultural	0.01%	Contract value	Seller
Sale of an option on commodity derivative	0.05%	Option premium	Seller
Sale of an option on commodity derivative where the option is exercised	0.0001%	Settlement value	Purchaser
Sale of an option in goods where exercise results in delivery	0.0001%	Settlement value	Purchaser

The options rows were added by the Finance Act 2018 when SEBI permitted commodity options, and the Finance Act 2020 substituted the table from 1 April 2020 to cover options in goods. Agricultural commodities notified by the government remain outside the tax. Unlike equity STT, these rates were not changed by the Finance Act 2026.

Formula

Futures: CTT = 0.0001 × price × lot size × lots, on the selling trade only

Traded option: CTT = 0.0005 × premium × lot size × lots, on the selling trade only

Exercised option: CTT = 0.000001 × settlement value, paid by the option holder

Worked example (illustrative prices)

Suppose MCX crude oil is trading at ₹6,000 a barrel and the contract lot is 100 barrels, so one lot is ₹6,00,000 of notional. A trader sells one lot of futures at 6,000 and buys it back at 5,950.

• CTT on the sale: 0.01% of ₹6,00,000 = ₹60
• CTT on the buy-back: nil
• Gross gain: 50 × 100 = ₹5,000; CTT takes 1.2% of it before brokerage and exchange charges

Now the option version. The same trader writes a 6,100 crude call for a premium of ₹80 on one lot of 100 barrels, receiving ₹8,000.

• CTT on writing: 0.05% of ₹8,000 = ₹4
• If the call finishes in the money and the buyer’s position is exercised into futures at 6,100, the buyer pays 0.0001% of the settlement value, about ₹0.6 on ₹6,10,000

Lot sizes and the exact exercise mechanics are set by MCX contract specifications and change by contract, so check the current specification before sizing; the lot used here is illustrative.

Why it matters

• It is cheaper than equity STT, but not free. At 0.01% versus 0.05% on futures, commodity intraday strategies have a lower cost floor than index futures, which is one reason crude and natural gas futures attract scalpers.
• Option sellers pay on every leg written. A short strangle on crude carries CTT on both legs at the time of writing.
• Exercise costs almost nothing. Because the exercise rate is 0.0001%, the decision to let an in-the-money commodity option devolve into futures is about margin and the futures position you inherit, not about tax.
• It is deductible as a business expense for traders reporting commodity derivatives income as business income, but is not a credit against tax.

Common mistakes

• Applying equity STT rates to MCX. The rates, the Act and the charging section are different.
• Assuming CTT applies to agricultural contracts. It does not; only notified non-agricultural commodities are taxed.
• Forgetting that commodity options on MCX devolve into the underlying futures on exercise, so the exercise tax base is the futures settlement value, and the new futures position then attracts futures CTT when it is eventually sold.
• Ignoring the other lines: exchange transaction charges, SEBI fees, stamp duty on the buy side and GST on brokerage and exchange charges are separate.

Indian specifics

CTT applies to recognised commodity exchanges, chiefly MCX for energy and metals. MCX contracts run to 23:30 or 23:55 IST depending on the season, so the tax file is built after a session that closes long after NSE. Commodity options on MCX are European and settle into the corresponding futures contract on exercise, which is why the exercise row is charged on the settlement value of that futures position. Equity index and stock derivatives on NSE and BSE are outside CTT and attract STT instead.

FAQ

What is the CTT rate on MCX futures?

0.01% of contract value on the sell side, for non-agricultural futures.

Is CTT charged on commodity options?

Yes: 0.05% of premium on the sell side, and 0.0001% of settlement value paid by the buyer on exercise.

Does the buyer of a commodity future pay CTT?

No. Futures CTT is seller-side only.

Are agricultural commodities exempt from CTT?

Yes. Only non-agricultural commodity derivatives are taxed.

Did the 2026 budget change CTT?

No. The 2026 changes were to equity STT; CTT rates were unchanged.

Related terms

• Securities Transaction Tax (STT), the equity equivalent
• Option writer, who pays on each leg
• Exercise, how commodity options devolve into futures
• Futures contract, the underlying of MCX options
• Commodities, live MCX chains
• Trading charges explained, every line on the contract note