Short-selling of securities on the stock exchanges, a market reform long-promised by the finance ministry and capital market regulator SEBI, is set to commence. The government has clarified that lending and borrowing of securities under the securities lending and borrowing scheme will not attract Securities Transaction Tax (STT) or capital gains tax. However, it is not clear if sale and repurchase transactions made on the basis of borrowed securities would be taxable.
Finance minister P Chidambaram had announced introduction of sort-selling in the 2007 budget. SEBI formally announced the scheme on December 29, 2007. The regulator has also decided to put in place a full-fledged stock lending and borrowing mechanism for all market participants in the securities market under the overall framework of Securities Lending Scheme 1997.