Dividend Stripping u/s 94(7) of Income Tax Act

Last updated: 08 March 2010

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Dividend Stripping - Section 94(7)

Suppose Record Date for Dividend / Income - 31.01.2010

Acquisition of Shares / Units of MF – Within 3 months prior to the record date (01.11.2009 till 31.01.2010)

Sale or Transfer of

· Shares within 3 months after the record date (01.02.2010 till 30.04.2010)

· Units of MF within 9 months after the record date (01.02.2010 till 31.10.2010)

…………….. in such a case, short term capital loss if any arising on the sale of such shares / MF Units, shall be ignored to the extent of dividend / income received or receivable thereon.

Example - (In the case of Shares) -

Particulars	Case I	Case II	Case III	Case IV
Dividend received (31.01.2010)	20000	20000	20000	20000
Sales Consideration	270000 (01.05.2010)	270000 (30.04.2010)	270000 (01.05.2010	270000 (30.04.2010)
Less: Cost of Acquisition	300000 (01.11.2009)	300000 (31.10.2009)	300000 (31.10.2009)	300000 (01.11.2009)
Short Term Cap. Gain / (Loss)	(30000)	(30000)	(30000)	(30000)
Less: Capital Loss to be ignored u/s 94(7)	-	-	-	20000
Short Term Capital Gain / (Loss) for the purpose of computing income chargeable to tax	(30000) Loss	(30000) Loss	(30000) Loss	(10000) Loss

Particulars	Case V	Case VI	Case VII
Dividend Received (31.01.2010)	20000	20000	20000
Sales Consideration	310000 (30.04.2010)	290000 (30.04.2010)	300000 (30.04.2010)
Less: Cost of Acquisition	300000 (01.11.2009)	300000 (01.11.2009)	300000 (01.11.2009)
Short Term Cap. Gain / (Loss)	10000	(10000)	NIL
Less : Capital Loss to be ignored u/s 94(7)	-	10000	-
Short Term Capital Gain / (Loss) for the purposes of computing income chargeable to tax	10000 Gain	NIL	NIL

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CA. Rishabh Mittal

CA in Practice

Hello Friends, I am practicing as an independent CA in Rajasthan. CA Practice to me, means the whole world where I can travel as much as possible enjoy the beauty of my profession. Before that, I worked with Infosys Technologies Ltd.,the second largest Software Exporter in India,as a Functional Consultant in SAP ER ... Read more

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