Mandeep Singh and Akashdeep Singh were guilty of missing penalty shots in the shootout as India lost 2-4 after the two teams ended 2-2 in the regulation time.
Roc Oliva netted the crucial final penalty after Quico Cortes brilliantly thwarted Mandeep's effort before Akashdeep mishit his charge.
Those two misses combined to allow Spain take full advantage and win the shootout.
The Spaniards hit the front in the second minute when Oliva got on the end of Alex Casasayas simple pass for a tap-in as a flowing move eliminated the Indian defence one by one.
And soon after Sandeep Singh ripped in a powerful cross from the right wing which Mandeep controlled at the back post and flicked home for a 2-1 lead.
From there on, the game got aggressive with numerous stoppages while Quico Cortes and P R Sreejesh made good saves just before the break.
The second half was equally tense but Spain dominated proceedings, winning four corners. However, they could convert none.
Both sides had their chances to win it in normal time, most notably when Mandeep turned home a cross from Dharamvir Singh. It was initially awarded but the video review showed it hit his foot, ruling out the goal two minutes from the end and leading to penalty shootout.
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