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Section 94(8) of it act

Dhaval (Job) (794 Points)

31 July 2013

As per section 94(8) bonus stripping is applicable when mutual fund allots bonus units, in this section nowhere it is mentioned regarding bonus shares.

My query is whether it is applicable to bonus shares also?

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8 Replies

CA. Kunal Lakhotia (ACA) (1006 Points)
Replied 31 July 2013

No it is not applicable for shares, only for units

vikas (student ) (139 Points)
Replied 31 July 2013

Introduction of section 94(8) by the Finance Act, 2004, with effect from April 1, 2005, has countered bonus-stripping activities in respect of mutual fund units.

These restrictive provisions are applicable if the following conditions are met:

1. The purchase of units (original units) has been made within a period of three months prior to the record date

2. Such person is allotted additional units (bonus units) without any payment, on the basis of his holdings on the record date; and

3. Such person sells or transfers all (or any) of the original units within a period of nine months after the record date but continues to hold all (or any) of the bonus units

Rohit Gupta (----) (94 Points)
Replied 31 July 2013

Section 94 (8) is applicable only for mutual fund units. not for shares

C.A. Jignesh N. Mehta (C.A.) (1030 Points)
Replied 31 July 2013

Not applicable on shares.

Bhav Bhuti Sharma (Towards Professionalism ) (823 Points)
Replied 31 July 2013

Section 94(8)

However, in respect of bonus stripping, the provisions of section 94(8) apply only to units of mutual funds, and not to shares of companies. One often witnesses assessees resorting to bonus stripping in respect of shares, simultaneously resorting to hedging of the open position in respect of shares through derivatives transactions.

I am not ever heard that any mutual fund issue bonus till now, I think it is not possible by its nature. If some assessee have bonus stripping of equity shares on the ground of section 94(8), then it may be commercial loss because it is only for units and that word not used in equity shares.