Speculative Business

A speculation transaction is the one which includes a contract for the sales or purchase of any commodity including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or the transfer of the commodity or scrips.

For example, in case a person buys an agriculture commodity derivative of cotton at a certain price and settles the same at a profit, without taking the delivery of the cotton and without paying Commodities Transaction Tax (CTT), then the same shall be covered under a speculation business.

There are certain transactions that are specifically excluded from the scope of speculation business, which are: –

• Hedging contract in respect of raw materials or merchandise or stocks and shares
• Forward contract
• Trading in derivatives through recognized stock exchange
• Trading in commodity derivatives through recognized stock exchange which is chargeable to commodities transaction tax (CTT). There is an exception to the requirement of chargeability of CTT – Agricultural Commodities since Assessment Year 2019-20. Therefore, agricultural commodity derivatives on which CTT has not been paid will be a part of speculation business

A speculative business is treated a separate and distinct business under the heads of income.