Section 94(7) - DIVIDEND STRIPPING
Dividend stripping [Section 94(7)] : Where –
(a) any person buys or acquires any securities or unit within a period of 3 months prior to the record date; and (b) such person sells or transfers –
(i) such securities within a period of 3 months after such date; or
(ii) such unit within a period of 9 months after such date; and
(c) the dividend or income on such securities or unit received or receivable by such person is exempt,
then, the loss, if any, arising to him on account of such purchase and sale of securities or unit, to the extent such loss does not exceed the amount of dividend or income received or receivable on such securities or unit, shall be ignored for the purposes of computing his income chargeable to tax.
Note : Record date means the date fixed by a company for entitlement of dividend, or by a mutual fund/administration /specified company for entitlement of dividend or bonus units.
Q1:- Chandu purchased units of UTI worth 15,46,000 on 1-5-2019. He received a dividend of 2,00,000 on such units tin 1-6-2019 (Record date : 31-5-2019). He sold the units on 30-11-2019 for 12,00,000. His other income under the head 'Capital Gains' is 10,00,000. Compute his total income for the assessment year 20-21.
Solution: Chandu has purchased units within 3 months before the record date and sold the same within 9 months after the record date. The income from units is exempt under section 10(35), hence Section 94(7) will apply to him.
Computation of total income of Chandu (amounts in:
Income from units of UTI [Exempt under section 10(35)]
Short term capital loss on purchase and sale of units [12,00,000 - 15,46,000]
Less: Exempted income from units (Loss from sale reduced by exempted income)
Other income under the head 'Capital Gains'
Total income of Chandu
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