What is Dividend and Bonus Stripping ? Plz help me.
3 Replies
CA RAMESH KUMAR AHUJA
(CA, DISA, LLB)
(5452 Points)
Replied 30 October 2009
Bnus and dividend stripping are sophisticated tax avoidance devices. You buy securities and shares cum-bonus and cum-dividend and sell them ex-bonus and ex-dividend.
Dividend is tax-free and bonus shares are not considered as income. The fall in the share value after bonus and dividend results in a capital loss in respect to the original shares, which can be set off against other capital gains.
Section 94 (7) of the Income-Tax Act, 1961 aims at preventing tax avoidance by a set of transactions in shares or units which are `self-cancelling'. An investor selling shares and securities ex-dividend at a lower price incurs short-term capital loss which is neutralised by the tax-free dividend. There is no loss in monetary terms. The provisions of the section intend to plug the loop hole and prevent the tax avoidance.
sivaram
(Asst Mgr-Taxation)
(6918 Points)
Replied 30 October 2009
nice explanation Mr Ramesh Kumar Ahuja
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