Commodity trading urgent query

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ankit

ankit (Querist)
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31 March 2016 can we set off loss of commodities trading futures and options against our normal business income

R.S..

R.S.. (Expert)
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31 March 2016 Dear Ankit, You can set off the loss against normal business income provided it is not speculative business. Losses of Speculative business can be set off only profits of Speculative business. Sec 43(5) defines speculative transaction as where contract of purchase/sale is settled otherwise than by actual delivery or transfer of commodity or scrip. However, as per Finance Act 2005, an eligible transaction of trading in derivatives carried out on recognized stock exchange is NOT considered as speculative transaction even if no deliveries are effected. So the general rule is as follows:
1. Purchase/ sale of commodities in Future market i.e. without delivery is Speculative income/loss
2.Purchase/ sale of commodities in Cash market i.e. with delivery is Business income/loss if commodities are held as stock in trade & Capital Gain if commodities are held as capital asset
3. Purchase and sale of derivative/Future & Options i.e. without delivery is treated as Business Income