Government sources said, The CBDT has indicated that it can only clarify something which is already in effect. Since the scheme has not been announced so far, it has conveyed its inability to provide clarifications.

Short-selling happens when investors sell securities they do not own, expecting that their prices will fall in the future. The investors then expect to buy the same securities when the prices fall.

CBDTs assistance had been sought because confusion remained over whether short-selling transactions would be settled by the proposed securities lending and borrowing (SLB) system, operated through the stock exchanges. Current income tax rules say any stock market transaction made through a stock exchange is a share transfer and, therefore, shall attract the securities transaction tax.

Government sources added that Sebi was also likely to dealy its announcement due to the high market volatility. Sebi has adopted a wait-and-watch policy and is likely to introduce the scheme only when the stock markets stabilise.

Meanwhile, to spur government action, many domestic players are considering filing representations to Sebi on various issues of the SLB system. The contract tenure, the exact taxation treatment and the number of stocks allowed for lending and borrowing are the key issues that will be part of a white paper to be submitted to Sebi.

The SLB was set to start simultaneously with short-selling for institutional investors, but was held back due to the confusion over the delay in CBDTs clarification.

Manoj Vaish, president & CEO-India, Dun & Bradstreet Information Services India, said, Yes, we are going to prepare a white paper on the key issues and submit it to Sebi in the next two to three days. There are some small and some prominent issues like the tenure for a contract, the tax treatments to these contracts and the number of stocks which are allowed for the SLB, which we need to put forward to Sebi.

In December 2007, Sebi had proposed to introduce a securities lending market in India and permit institutional investors to sell short. Sebi... sought to put in place a full-fledged SLB scheme for lending a thrust to short-selling.

TC Nair, a whole-time member of Sebi, had earlier said, The success of this (SLB) mechanism is dependent on the participation of large-scale investors with a long-term horizon. We are awaiting clarifications by the CBDT regarding important issues of taxations and tax exemptions.

According to the Sebi notification, securities traded in the F&O segment are eligible for the SLB mechanism. Currently, there are 224 stocks on which F&O products are available....