20 November 2014
Bonus stripping is done in order to avoid tax evasion plans of investors. It provides that the loss, if any arising to a person on account of purchase or sale of original units shall be ignored for the purpose of determining the taxable income of the person, if all the following conditions are satisfied –
Provisions: Where, (a) any person buys or acquires any units within a period of three months prior to the record date; (b) such person is allotted additional units without any payment on the basis of holding of such units on such date; (c) such person sells or transfers all or any of the original units referred to in clause (a) within a period of nine months after such date, while continuing to hold all or any of the additional units referred to in clause (b)(i.e., Bonus units),
then, the loss, if any, arising to him on account of such purchase and sale of all or any of such units shall be ignored for the purposes of computing his income chargeable to tax and the amount of loss so ignored shall be deemed to be the cost of purchase or acquisition of such additional units referred to in clause (b) as are held by him on the date of such sale or transfer.
Following Points merit consideration: - Provisions of this section apply to all units whether bought or acquired. - Provisions cover both open and close ended equity funds. - Provisions applicable where units are held as stock in trade also. - Provisions not applicable in respect of shares. If all the additional units are transferred before the original units are sold, then this provision would not be applicable.
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