I need clarity on a specific taxation issue related to short selling and auction settlement under Indian Income Tax rules.
Here’s the situation:
I short-sold a stock in intraday, intending to buy it back before market close.
Unfortunately, the stock hit the upper circuit, and I couldn’t square off my position.
As a result, the broker reported it as a short delivery, and the exchange conducted an auction the next trading day to purchase shares and deliver them to the buyer.
I incurred a loss of around ₹68,000 in this process (the auction buy price was much higher).
My broker’s tax P&L statement shows this loss under Short Term profit section with a holding period of “–1 day.”
Now, the confusion:
Should this be treated as
(a) an intraday speculative loss (since it started as an intraday trade), or
(b) a short-term capital loss (since it resulted in an exchange auction and actual delivery obligation)?
(c) neither of them, but income form another sourses
IMO, it would be considered as an intraday trade, and therefore a speculative business loss.
Since the exchange delivers the shares purchased during the auction directly to the buyer’s Demat account, the question of capital gain/loss doesn’t arise, as no shares are credited or debited from the seller’s Demat account.
When there is no ownership, there can’t be any capital gains.