Sebi urges GST Council to fix tax issues in commodity derivatives

MUMBAI: The Securities and Exchange Board of India (Sebi) has made a representation to the secretariat of the Goods and Services Tax (GST) Council to resolve long-standing tax issues faced by investors trading in physically settled commodity derivatives.

“There are problems that we have flagged in commodity derivatives physically settled in general, which has got some real GST issues and we want the GST council to look at them and we have some solutions that we have posed to the Revenue Department, which is a secretariat for the GST council,” said Sebi chief Tuhin Kanta Pandey on the sidelines of the IMC Capital Markets Conference 2026 on Monday.

Pandey said Sebi has proposed an integrated GST mechanism for physically delivered commodity derivatives, replacing the current state-level GST framework.

“The warehouses could be located in various places. So, in which case they have to take registration from all the states and for the purpose of delivery and it's really cumbersome. Physical delivery, it's not that it happens every time because you can close that also. You can square off the transaction before that also. But physical delivery only ensures that, you know, you don't have risks,” said Pandey.

If approved, the proposal could deepen participation in commodity derivatives, particularly in agricultural commodities. The regulator is also seeking to broaden participation by banks and insurers, though progress has been limited.

“We had taken up this issue regarding banks and insurance companies with respective regulators because they don't permit it. I think the regulators currently, they are not very favourably inclined to allow the banks and the insurance companies to do it and they have some valid rationale for it,” said the Sebi chief.

He added that Sebi is awaiting a change in stance from the Reserve Bank of India and the Insurance Regulatory and Development Authority of India.

On know-your-customer norms, Pandey said a revamped central KYC system could be ready by July. “So the CKYC 2.0 is now under preparation. Last week, we had a meeting for example with CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest of India) and then identifying all the different points which need to be addressed. What we really want to achieve and possibly we may have something by July end.”

The push follows a directive from finance minister Nirmala Sitharaman on 25 April, urging Sebi to accelerate efforts to implement CKYC in coordination with other regulators.

“Each regulator is keen to do it. I would suggest that Sebi should help drive the prescription of the common KYC norms and the simplification and digitization of KYC processes across the Indian securities market,” Sitharaman had said.