Section 66 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
This article covers clauses (27) to (40) of section 66, the glossary for Part D of Chapter IV (profits and gains of business or profession). The most used of them is the definition of a speculative transaction in clause (31), with its exceptions and the linked definition of a specified derivative transaction in clause (33). Clauses (1) to (26) are in our companion article on section 66(1) to (26). The reading is as per the Income-tax Act, 2025 as amended by the Finance Act, 2026; later amendments, rules and notifications should be checked. For help with your books, see our books of accounts compliance service.
A speculative transaction is a contract for purchase or sale of any commodity, including stocks and shares, that is periodically or ultimately settled otherwise than by actual delivery or transfer of the commodity or scrips, except four listed transactions. A specified derivative transaction is excluded only if it is carried out electronically on screen-based systems of a recognised stock exchange and supported by a time-stamped contract note. Section 66 is among the provisions amended by the Finance Act, 2026 (section 41 of that Act); the substituted clause is clause (4), in the companion article.
Clause (27): scientific research
"Scientific research" means any activity for the extension of knowledge in the fields of natural or applied science, including agriculture, animal husbandry or fisheries. References to expenditure incurred on scientific research include all expenditure for the prosecution, or the provision of facilities for the prosecution, of scientific research, but do not include expenditure for the acquisition of rights in, or arising out of, scientific research. References to scientific research related to a business or class of business include research that (i) may lead to or facilitate an extension of that business or all businesses of that class, or (ii) is of a medical nature and has a special relation to the welfare of workers employed in that business or class.
Clause (31): speculative transaction
Clause (31) defines a speculative transaction as one 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. Four transactions are carved out:
| Exception | What is excluded |
|---|---|
| (a) | A specified derivative transaction as defined in clause (33) |
| (b) | A contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchandising business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured or merchandise sold by him |
| (c) | A contract in respect of stocks and shares entered into by a dealer or investor to guard against loss in his holdings of stocks and shares through price fluctuations |
| (d) | A contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage, to guard against loss which may arise in the ordinary course of his business as such member |
The set-off and carry-forward of losses from speculation business is a different subject; it is in sections 113 onwards of Chapter VII, outside this article.
Example (invented). Ishaan buys 500 shares and the contract is settled by paying or receiving the difference, with no delivery of the shares. Unless one of the four exceptions applies, it is a speculative transaction under clause (31). If Ishaan instead takes delivery of the shares, clause (31) does not describe the contract. No amounts are needed for the classification, since the test is the mode of settlement.
Clause (33): specified derivative transaction
A specified derivative transaction means a transaction in respect of:
- trading in derivatives referred to in section 2(ac) of the Securities Contracts (Regulation) Act, 1956; or
- trading in commodity derivatives (other than agricultural commodity derivatives) chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013; or
- trading in agricultural commodity derivatives,
if the transactions are (a) carried out through a stock broker or other intermediary registered under section 12 of the Securities and Exchange Board of India Act, 1992 in accordance with the Securities Contracts (Regulation) Act, 1956, that Board's Act or the Depositories Act, 1996 and the rules, regulations or bye-laws made or directions issued under them, or by banks or mutual funds, electronically on screen-based systems of a recognised stock exchange; and (b) supported by a time-stamped contract note issued by the intermediary to every client indicating (i) the unique client identity number allotted under any law in force and (ii) the Permanent Account Number allotted under the Act.
These references to other Acts are quoted as printed; the reader should check those laws.
The other clauses in the range
| Clause | Term | Meaning in the Act |
|---|---|---|
| (28) | Securities transaction tax | Meaning under Chapter VII of the Finance (No. 2) Act, 2004 (23 of 2004) |
| (29) | Service (for section 26(2)(h)) | A service of any description made available to potential users, including services in connection with business of an industrial or commercial nature such as accounting, banking, communication, conveying news or information, advertising, entertainment, amusement, education, financing, insurance, chit funds, real estate, construction, transport, storage, processing, supply of electrical or other energy, and boarding and lodging |
| (30) | Small enterprise | An enterprise classified as such under the Central Government notification under the Micro, Small and Medium Enterprises Development Act, 2006 |
| (32) | Specified Banking or Online Mode | Transaction by an account payee cheque or account payee bank draft, or use of electronic clearing system through a bank account, or other electronic mode as may be prescribed |
| (34) | State Government undertaking | Includes a State-Act corporation; a company with more than 50% of paid-up equity share capital held by the State Government; a company with more than 50% held by such an entity (singly or together); a company or corporation where the State Government can appoint the majority of directors or control management or policy decisions, directly or indirectly; and an authority, board, institution or body established under a State Act or owned or controlled by the State Government |
| (35) | State Industrial Investment Corporation | A Government company within section 2(45) of the Companies Act, 2013, engaged in providing long-term finance for industrial projects |
| (36) | State Financial Corporation | A Financial Corporation established under section 3 or 3A, or an institution notified under section 46, of the State Financial Corporations Act, 1951 |
| (37) | Successor entity | The amalgamated Indian company (amalgamation); the resulting Indian company (demerger); a company succeeding a firm under section 70(1)(zd); a limited liability partnership on conversion of a private or unlisted public company under section 70(1)(ze) |
| (38) | Taxable commodities transaction | Meaning under Chapter VII of the Finance Act, 2013 |
| (39) | Taxable securities transaction | Meaning under Chapter VII of the Finance Act, 2004 (13 of 2004) |
| (40) | University | Meaning in section 70(2) (Table: serial number 7) |
The "Specified Banking or Online Mode" in clause (32) leaves any other electronic mode to the rules ("as may be prescribed"); the detail is left to the Income-tax Rules, 2026. For the transfers listed in section 70, see section 70.
Printing and drafting points
- Clause (28) cites the "Finance (No. 2) Act, 2004 (23 of 2004)" while clause (39) cites the "Finance Act, 2004 (13 of 2004)" for Chapter VII; the two are printed as shown and are not harmonised in the text.
- In clause (33) the words after "if such transactions are" read "(a) is carried out", a grammatical slip in the print.
- Section 66 is among the provisions amended by section 41 of the Finance Act, 2026. No change to clauses (27) to (40) is marked in the consolidated copy at these lines.
Need help classifying transactions?
Whether a trade in shares or derivatives is speculative, and how it is recorded, depends on the way it was settled and on the contract notes. Our books of accounts compliance team can help review those records.
Key takeaways
- A speculative transaction is settled otherwise than by actual delivery or transfer; four exceptions are listed.
- A specified derivative transaction needs screen-based electronic trading on a recognised stock exchange and a time-stamped contract note.
- "Scientific research" excludes expenditure on acquiring rights in, or arising out of, scientific research.
- "State Government undertaking" uses a more-than-50% shareholding test and a control test.
- A clause 28 and clause 39 mismatch of the Finance Act citations is a printing point to check against the official text.
Read next
- Section 66(1) to (26): "paid" and other Part D terms
- Section 62: books of account
- Section 112: business loss carry forward
- Income-tax Act 2025 Chapter IV: computation of total income
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.