Can Loss in Commodities F & O Trade be Adjusted With Capital Gains

: Commodity Trading on MCX is Speculative Trade !Even after the recognition of MCX by CBDT for the purpose of section 43(5)(d) the commodities trades are speculative , because SCRA does not cover commodity trades

The derivative segments trades (Futures & Options )  in India are done in shares and commodities. While the trade in F & O segments of shares through NSE or BSE is considered business trade now . A confusion arises in mind of tax payers who indulge in F & O trades in commodities segment. For example , Hitesh of Mumbai askes :

We are trading in derivatives on commodities (gold and silver) on MCX (Multi Commodity Exchange of India LTd ) and it is not an hedging transaction and have profits from the same.I have 2 queries

1. is this income speculative or business income?
2. can this income be set off against capital gains from equity shares or equity derivatives.
3. is my assumption that commodities trading has now been removed from speculative ambit right if the transactions are carried out on MCX.

Is Commodity F & O Transaction Speculative?

Commodity trading through commodities exchange like NCEDEX or MCX or others are speculative because the change which has been brought by amendment to section 43(5)(d ) wherein it was provided that the trade in F & O in shares through recognized stock exchange will not be considered speculative transaction. Read the amendment below.

[(d) an eligible transaction in respect of trading in derivatives referred to in clause [(ac)] of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange

Please note that Clause ac of section 2 of SCRA 1956 is only about shares , securities or debts or derivative and not commodities trades . Thus , the amendment to make F & O trade in shares shall not speculative transaction . Same benefit is not to commodity trades through MCX or NCEDEX or other exchange.

Commodity Derivative ( F & O ) Trade adjustment with capital gains?

Simple answer is no , as the loss on F & O trades in commodities ( gold and silver in your case )  through commodities stock exchange (MCX in your case )  is speculative trade and therefore such loss can be set off with speculative gains only.

And your last question about assumption that commodities trading has now been removed from speculative ambit right if the transactions are carried out on MCX is not correct entirely. Only derivative trades which are not commodity trades are now business activity . For example , the foreign exchange derivative on the MCX is business activity because the foreign exchange is covered under SCRA definition. Other than foreign exchange , the index based derivatives shall also be , in my opinion will be business activity in case of MCX which is recognized by CBDT for 43(5)(d )(ii) .

In nut shell , answer to question 1 is Yes , 2 is No and 3 is assumption is wrong.