Finally, short selling may soon be allowed again on the Indian stock markets. The Central Board of Direct Taxes (CBDT) has clarified that lending and borrowing of shares won’t attract the securities transaction tax (STT) or capital gains tax (CGT).
The CBDT note comes almost a year after Finance Minister P. Chidambaram promised to reintroduce short selling, which was restricted after the 2001 securities scam. SEBI has recently announced that it will roll out a securities and lending model to facilitate the process. However, lack of clarity on the taxation policy was holding up the formal introduction of short selling.
— Manu Kaushik