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    Dividend stripping refers to the practice of buying securities shortly before the record date for a dividend and selling them shortly after to obtain the dividend income while minimizing capital gains tax. Section 94 of the tax code disallows losses from the sale of securities within 3 months before or after the record date if the dividend received is exempt from tax. Any excess loss over the exempt dividend amount can be set off or carried forward.

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    Dividend stripping refers to the practice of buying securities shortly before the record date for a dividend and selling them shortly after to obtain the dividend income while minimizing capital gains tax. Section 94 of the tax code disallows losses from the sale of securities within 3 months before or after the record date if the dividend received is exempt from tax. Any excess loss over the exempt dividend amount can be set off or carried forward.

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    Uploaded by

    Rahul
    Dividend stripping refers to the practice of buying securities shortly before the record date for a dividend and selling them shortly after to obtain the dividend income while minimizing capital gains tax. Section 94 of the tax code disallows losses from the sale of securities within 3 months before or after the record date if the dividend received is exempt from tax. Any excess loss over the exempt dividend amount can be set off or carried forward.

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    Question 17: Write a note on Dividend Stripping.

    Answer: Dividend Stripping Section 94 As per


    section 94, if any person buys any securities or units within a period of three months prior to the
    record date and such person sells such securities within a period of three months after such date, or
    such units within a period of nine months after such date and the dividend or income on such
    securities or units received or receivable by such person is exempted, then, the loss, if any, arising
    therefrom shall not be allowed to be setoff or carried forward but if such loss is more than the
    amount of income, in that case excess over such income shall be allowed to be setoff or carried
    forward. Example: Mr. X purchased equity shares of `1,00,000 of ABC limited on 01.11.2018 and
    company declared dividend of `10,000 and record date is 31.12.2018. Mr. X sold the shares on
    10.11.2018 to Mr. Y for `1,08,000 and Mr. Y received dividend of `10,000 from the company on
    31.12.2018. He sold the shares on 10.01.2019 for `1,01,000, in this case loss of `7,000 shall not be
    allowed to be setoff or carried forward.

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