Start with the transaction and income head
Section 36(1)(xvi) of the Income-tax Act, 1961 allows deduction of commodities transaction tax (CTT) paid by the taxpayer on taxable commodities transactions entered into in the course of business during the previous year, provided the income arising from those transactions is included under profits and gains of business or profession. This guide covers FY 2025–26 and AY 2026–27. It assumes a company carrying on commodity derivatives trading as a business. The clause does not turn any broker fee into CTT and does not decide the classification of every derivative.
Read the applicable text: Income-tax Act, 1961: sections 36 and 43 Notified AY 2026–27 ITR-6.
Reconcile the broker charge before allowing it
Use trade or contract notes to identify the transaction, product, exchange, legal taxpayer, charge and period. Compare CTT shown on the notes with the broker charge ledger, settlement and any corrections or credits. Separate brokerage, GST, exchange fees and securities transaction tax. For FY 2025–26, verify whether the trade falls within Chapter VII of the Finance Act, 2013, as amended, and check the applicable tax base, rate and liable side under sections 116–118. The examples assume evidenced charges; the amount shown on the broker note is not the statutory rate or base.
Keep a separate derivative eligibility column
Section 43(5), first proviso, clause (e), excludes eligible commodity derivatives transactions on a recognised stock exchange from speculative treatment where they are chargeable to CTT, subject to the agricultural exception below. Eligibility requires electronic screen-based execution through a qualifying registered member or intermediary, as well as the prescribed contract-note evidence. The further proviso removes the CTT chargeability condition for agricultural commodity derivatives under clause (e); it does not dispense with the other eligibility requirements. Keep the time-stamped contract note with the taxpayer PAN, unique client identity and unique trade number required by the definition. A nil-CTT line is therefore not, by itself, a classification decision.
Match to income and reconcile the book entry
Match the verified CTT to the commodity transaction results taken into the business computation. Check the separate section 43(5) classification of eligible derivatives and retain the evidence for that analysis. If the qualifying CTT already reduced the book profit used as the Schedule BP starting point, avoid taking it again. Where settlement results are booked net, reconstruct the gross result and charges to demonstrate that each amount is accounted for once. In notified AY 2026–27 ITR-6, Part A–OI item 6p concerns STT under section 36(1)(xv). For a booked CTT amount disallowed under section 36(1)(xvi), use the applicable other section 36 disallowance in item 6r, which feeds the total in 6s and Schedule BP item 14. Reconcile any separate allowable adjustment with the applicable Schedule BP line for that business computation.
Treat unsupported items as open exceptions
Do not take an amount merely because the broker made a periodic provision, a different entity paid it, or the charge cannot be tied to a trade. Resolve reversals and timing differences before finalising the computation. Keep this business deduction separate from any analysis of an amount classified under another income head.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Net versus gross result
Commodity trading result before CTT is ₹9 lakh. Verified eligible CTT of ₹12,000 is already in the book expense, leaving ₹8.88 lakh before other adjustments. Deducting ₹12,000 again would incorrectly produce ₹8.76 lakh.
Illustrative example 2: Separate the charge types
A broker debits ₹28,000: ₹8,000 CTT, ₹15,000 brokerage and ₹5,000 other charges. Only the ₹8,000 separately identified as CTT enters the section 36(1)(xvi) test; examine the other ₹20,000 separately.
Illustrative example 3: Debit and correction
Contract notes show ₹18,400 CTT and a supported correction reverses ₹2,100 of that same period’s charge. Assuming the final amount was paid, qualifying CTT is ₹16,300.
Illustrative example 4: Unmatched payment line
Reported CTT totals ₹37,000; ₹32,500 is matched to the company’s eligible trades and evidence of payment. Keep ₹4,500 in the exception queue until reconciled.
Illustrative example 5: Different legal entities
A broker file includes ₹14,000 for the filing company and ₹9,000 for its subsidiary. The broker file totals ₹23,000. The filing company’s working starts at ₹14,000, subject to the conditions; exclude the subsidiary’s ₹9,000.
Illustrative example 6: Loss position with eligible charges
Assume a business trading loss of ₹1.20 lakh before ₹9,000 of qualifying CTT. The result is a loss of ₹1.29 lakh before separate classification and loss rules.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm FY and assessment year | Return working and trading dates |
| 2 | Identify the trading entity | Broker client code and company records |
| 3 | Separate CTT from other charges | Contract note and broker ledger |
| 4 | Match each charge to a taxable trade | Exchange contract and product data |
| 5 | Verify the actual payment or supported settlement | Remittance and broker account trail |
| 6 | Resolve credits or duplicate lines | Correction notes and matching report |
| 7 | Confirm the results enter business income | Trading ledger and tax classification note |
| 8 | Check section 43(5) independently | Eligibility evidence and tax analysis |
| 9 | Compare gross and net presentation | Book-to-tax bridge and Schedule BP working |
| 10 | Sign off unresolved amounts separately | Exception log and final computation |
Sixteen practitioner FAQs
1. Is CTT itself an income-tax payment credit?
No. The clause provides a deduction in computing business income when conditions are met.
2. Does an exchange fee count as CTT?
No. Identify the statutory charge separately.
3. Can the parent claim CTT shown for a subsidiary?
Match liability and payment to the taxpayer claiming the deduction.
4. Can broker notes alone establish actual payment?
Reconcile notes to the settlement and payment evidence.
5. What if gross P&L is unavailable?
Reconstruct it from transactions and charges so the final book treatment can be traced.
6. Does the deduction automatically make the trade non-speculative?
Apply the separate test under section 43(5).
7. Does a trading loss automatically deny CTT?
Check whether the trading results are included in the business computation and the other conditions are met.
8. Can securities transaction tax be recorded in this ledger?
Record it separately under its own statutory test.
9. Can a provisional broker estimate be claimed as paid CTT?
Confirm actual CTT paid and resolve any estimate first.
10. What if a trade spans settlement dates near year-end?
Record trade, charge and settlement dates and apply the relevant period requirements.
11. Does all commodity exposure involve a taxable commodities transaction?
No. Test the actual product and transaction under Chapter VII.
12. What if the broker consolidates different exchanges?
Retain trade-level identity and reconcile totals to each source.
13. How should a reversal be handled?
Tie it to the original charge and review the year and amount actually affected.
14. Does a net debit justify another deduction in Schedule BP?
No. First establish whether the debit already reduced the starting profit.
15. Can an amount from another income head be claimed under this clause?
The clause requires the related income to enter the business computation.
16. What should the reviewer see in the final file?
A trade-to-tax trail covering identity, charge, payment, income head and a single book-to-tax effect.
Official sources
Income-tax Act, 1961: sections 36 and 43 Notified AY 2026–27 ITR-6 Finance Act, 2020, sections 21 and 148–151: commodity derivatives and CTT amendments