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Aplicability of Section 94(7)

surabhi (CA Final) (76 Points)

21 October 2010

An individual has invested in daily dividend mutual fund scheme on which dividend received on daily basis is reinvested. While calculating the capital gain on redemption which is within the period laid down in Section 94(7) ,the cost considered includes dividend amount reinvested and accordingly the loss is reduced. Whether the effect given is in order? Will there be any other disallowance u/s 94(7)?

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Balaji (Knowledge Seeker) (317 Points)
Replied 24 October 2010

Dear Surabhi,

When the dividends(which are tax-free in assessee's hands) are re-invested, it would be treated as fresh purchase of units of the scheme.While calculating the Capital Gains,the same should be done for each purchase individually and then aggregated to arrive at the total Capital Gains.Each of such Capital Gain shall be a Short-term Capital Gain.Sec.94(7) shall not impact these transactions.