Dividend Stripping

Dividend stripping is explained in section 94(7) of Income tax act.

normally share value goes up when dividend is declared, but falls once it is paid to shareholders.

so some guy buys at a high and sells at a low, and makes short term capital loss and at the same time earns tax free divided.

So this section provides that the (short term) capital loss claimed by assessee shall be reduced by the dividend/income received by him.

To attract this section:

1. a person buys units of a mutual fund or some shares within 3 months prior to the record date*

2. he sells the shares within 3 months after the record date, or the units within 9 months of the record date.

3. he earns dividend or other income which is exempt from tax

*record date is the date on which dividend is declared

Thank You very much Mr Gopalakrishnan for the reply