Latest Expert Exchange Queries

GST Demo Service software link:
Username: demouser Password: demopass
Get your inventory and invoicing software GST Ready from Binarysoft
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Popular Search: list of goods taxed at 4% :: articles on VAT and GST in India :: empanelment :: VAT Audit :: TAX RATES - GOODS TAXABLE @ 4% :: ARTICLES ON INPUT TAX CREDIT IN VAT :: ACCOUNTING STANDARDS :: VAT RATES :: ACCOUNTING STANDARD :: TDS :: Central Excise rule to resale the machines to a new company :: form 3cd :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: due date for vat payment :: cpt
« News Headlines »
 How to file income tax returns online without having Form 16 in 10 simple steps
 Deadline For Filing Income Tax Return (ITR) Is Just 11 Days Away: 10 Latest Details To Know
  10 incomes you need not pay any tax on
 How To File Income Tax Returns In Three Steps By March 31, 2018
 10 things about income tax every taxpayer should know
 What to do if your TDS is not deposited with the government
 What if you forget to verify your Income Tax return?
 TDS on rent and other tax tasks to complete before March 31
 5 income tax changes which will come into effect from April 1, 2018
 Why you shouldn't be a last-minute tax filer
 How to calculate income tax for this assessment year on Moneycontrol

Short selling: Clarity needed on tax issues
February, 27th 2008

A few weeks back, SEBI and the RBI decided to permit all classes of investors, including institutional investors, to short sell and put in place simultaneously a full-fledged securities lending and borrowing scheme for all market participants in the Indian securities market under the overall framework of Securities Lending Scheme, 1997.


Short selling involves sale of a security that the seller does not own. According to the scheme, investors are required to mandatorily honour their obligation of delivering the securities at the time of settlement. Borrowing of equity shares shall only be for the purpose of delivery into short sale. The tenure of lending/borrowing shall be fixed as standardised contracts.

To start with, contracts with tenure of 7 trading days are proposed to be introduced. There shall be no lending/borrowing activity during the periods of corporate action in the security. The margin/collateral shall be maintained only in cash. No interest shall be paid on such collateral.

Short selling/lending of securities is likely to be implemented shortly. However, there are host of tax aspects which need to be addressed and ironed out by the tax authorities.

Clarity needed

To begin with, the application of FIFO method to determine the period of holding and the cost of acquisition of securities lent and returned in the demat form requires clarification from the tax authorities.

Further, complexities also arise on characterisation of the fees receivable by the lender of securities viz., whether fees could be characterised as income in respect of securities (especially in case of a foreign institutional investor) or income from other sources or business income.

Similarly, there is no clarity regarding the method of application of the criteria or principles on characterisation of income viz., business income or capital gains, on short sale of securities in the hands of the borrower. Also, there is a doubt whether the shares short sold can be regarded as held on the date of transfer for the purpose of classifying it as capital asset. Similarly, whether borrowing charges could be regarded as an expenditure incurred wholly and exclusively in connection with the transfer of a capital asset for the purposes of computing capital gains or not, requires clarity from the tax authorities.

Further, when the borrower (beneficial owner of securities lent) returns the corporate benefits viz., dividend accrued on the borrowed securities to the Approved Intermediary to be finally returned to the lender, the issue that arises is whether such dividend would still be exempt in the hands of the lender, since he has not received such dividend directly from the concerned Indian company (after payment of dividend distribution tax). If regarded as exempt in the hands of lender and borrower/ buyer, a sum larger than that declared and distributed by the company is exempted from tax. A clarification is desired on these issues.

STT Burden

The existing tax provisions also lack clarity on whether securities transaction tax would be applicable on transactions of short selling of securities.

The market is hoping that the forthcoming Budget and the Central Board of Direct Taxes would soon provide clarity on these issues. The Finance Ministry could also take clues from the debt markets where lending and borrowing in G-Sec in the form of Repo transactions has been in place and functioning without any glitch for a couple of years.

Sunil Gidwani
Vijayashree R.
Kinnari Mehta
(The authors are with PricewaterhouseCoopers)

Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Careers

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions