# Speculative Business

## Definition

A speculative transaction is one in which:

A contract for purchase or sale of any commodity (including stocks and shares)
Is settled otherwise than by actual delivery or transfer of the commodity/scrips.

## Transactions NOT Deemed Speculative

The following transactions are excluded from the definition of speculation:

1. Hedging contracts of raw material, shares or merchandise (genuine hedging against business risk)

2. Forward contracts entered to guard against loss

3. Derivatives trading through a Recognised Stock Exchange

## Special Rule for Companies

Deeming Provision: If a part of a company's business consists of purchase and sale of shares of other companies, that part is deemed to be a speculative business.

### Exceptions (Companies NOT deemed to carry on speculation):

1. A company whose Gross Total Income mainly consists of income from:

House Property
Interest on Securities
Capital Gains
Income from Other Sources

2. A company whose principal business is:

Trading in shares
Banking
Granting of loans and advances

## Capital vs Revenue Receipt

Receipt Type	Treatment
Revenue Receipt	Taxable as PGBP
Capital Receipt	Generally not taxable, unless specifically taxable under any provision of the Act

## Why It Matters

Loss from speculative business can only be set off against profits from speculative business (Section 73).

Worked example

### Example 1

Example: XYZ Ltd., a manufacturing company, also engages in purchase and sale of shares of other companies. The company's principal business is manufacturing.

Treatment: The share trading activity will be treated as speculative business (Explanation to Section 73 deeming provision applies).

### Example 2

Example: Mr. Raj enters into a futures contract on NSE for purchase of Nifty futures and squares off the position without taking delivery.

Treatment: This is NOT a speculative transaction because derivatives trading on a recognised stock exchange is specifically excluded.

⚠️ Common exam mistakes

Treating derivatives trading on stock exchanges as speculation — it is specifically excluded.
Forgetting the deeming fiction for companies dealing in shares of other companies.
Mixing up the exceptions: thinking ALL companies trading in shares are non-speculative — only those whose principal business is share trading, banking or money-lending qualify.

Bare-Act text Section 43(5) and Explanation to Section 73 · Income-tax Act, 1961 · click to expand

Section 43(5): 'speculative transaction' means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. Explanation to Section 73: Where any part of the business of a company consists in the purchase and sale of shares of other companies, such company shall be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares.

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