Clause 33 of the Finance Bill, 2026 proposes a technical and clarificatory amendment to section 66 of the Income-tax Act, 2025, which contains definitions applicable to Part D of Chapter IV (income under the head “Profits and gains of business or profession”).
The amendment seeks to insert a definition of the term “commodity derivative”, which is already used in the Act, specifically in the definition of “specified derivative transaction” but was not independently defined. The absence of this definition created an interpretational gap in the 2025 Act.
The amendment aligns the law with the Income-tax Act, 1961 and takes effect from 1 April 2026 (tax year 2026-27 onwards).
Background: Where the Gap Existed
Use of the Term Without Definition
Section 66(33) of the Income-tax Act, 2025 defines “specified derivative transaction”. This definition explicitly refers to transactions in commodity derivatives. However:
- The Act did not define “commodity derivative” anywhere, despite using the term, and
- The classification of transactions as specified (non-speculative) or otherwise depends on this concept.
This drafting gap had the potential to create:
- Uncertainty in interpretation, and
- Disputes regarding the tax treatment of commodity derivative transactions.
Position Under the Income-tax Act, 1961
Under the Income-tax Act, 1961, the term “commodity derivative” is specifically defined and has been consistently applied for determining:
- Whether a derivative transaction is speculative, and
- Whether gains or losses are taxable as business income.
The absence of a parallel definition in the 2025 Act was therefore an omission rather than a policy change.
What Does Clause 33 of Finance Bill, 2026 Propose?
Clause 33 proposes to:
- Amend section 66 of the Income-tax Act, 2025, and
- Insert a definition of “commodity derivative”,
- On the same lines as the definition under the Income-tax Act, 1961.
The amendment is intended purely to align terminology and remove ambiguity.
Meaning of the Proposed Amendment
In effect, the amendment ensures that:
- The term “commodity derivative” used in section 66(33) has a clear statutory meaning
- The scope of “specified derivative transaction” can be determined with certainty
- The tax treatment of commodity derivative transactions continues unchanged
The amendment does not modify the concept of specified derivative transactions; it only clarifies a term already embedded in that concept.
Implications of the Amendment
1. Legal and Interpretational Clarity
- Removes ambiguity caused by use of an undefined expression
- Ensures uniform interpretation by taxpayers and tax authorities
2. Continuity With Established Law
- Aligns the Income-tax Act, 2025 with the long-standing framework of the 1961 Act
- Preserves settled judicial and administrative understanding
3. Reduced Risk of Litigation
- Prevents technical disputes over the meaning of “commodity derivative”
- Strengthens certainty in classification of derivative transactions
4. No Change in Tax Incidence
- The amendment does not introduce new taxes or exemptions
- It does not expand or restrict the scope of taxable transactions
- It is definitional, not substantive
What the Amendment Does Not Do
- ❌ It does not alter section 66(33) beyond clarifying terminology
- ❌ It does not change the treatment of speculative vs non-speculative transactions
- ❌ It does not affect regulatory treatment of commodity markets
Effective Date
✔ Effective from 1 April 2026. Applicable to tax year 2026-27 and subsequent tax years.
Conclusion
Clause 33 of the Finance Bill, 2026 addresses a technical drafting gap in the Income-tax Act, 2025 by providing a statutory definition of “commodity derivative”. By aligning the definition with the Income-tax Act, 1961, the amendment ensures clarity, continuity, and certainty in the taxation of derivative transactions.
The change represents legislative refinement, not a shift in tax policy, and safeguards consistent application of business income provisions under the new tax framework.
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