Dividend and Income Stripping Transactions [ Section 94(7) ] - Income Tax - Ready Reckoner - Income Tax

Dividend and income stripping transactions [ Section 94(7) ] As per section 94 aims at preventing avoidance of tax by an assessee by sales or purchases of securities under different circumstances. where ( a ) any person buys or acquires any securities or unit within a period of three months prior to the record date; ( b ) such person sells or transfers- ( i ) such securities within a period of three months after such date; or ( ii ) such unit within a period of nine months after such date; ( c ) the dividend or income on such securities or unit received or receivable by such person is exempt, then, the loss, if any, arising to him on account of such purchase and sale of securities or unit, to the extent such loss does not exceed the amount of dividend or income received or receivable on such securities or unit, shall be ignored for the purposes of computing his income chargeable to tax. Note Dividend and income from units of mutual fund specified under section 10(23D) and UTI is taxable in the hands of shareholder/unitholder, the provisions of section 94(7) are currently not relevant in relation to such income. In case of dividend from units of business trust, the same would be taxable in the hands of unitholder. if the special purpose vehicles (SPV) exercise the option under section 115BAA in which cases the provisions of section 94(7) would not be attracted. However, if the SPV does not exercise option under section115BAA , dividend component of income distributed to unit holder would be exempt in the hands of unit holder, in which case the provisions of section 94(7) would be attracted if the persons buys and sells or transfers unit within the specified period mentioned above. Meaning of certain terms Record Date means such date as may be fixed by- (i) a company; (ii) a Mutual Fund or the Administrator of the specified undertaking or the specified company referred to in the Explanation to clause (35) of section 10 ; or (iii) a business trust defined in clause (13A) of section 2 ; or (iv) an Alternative Investment Fund defined in clause (b) of regulation 2(1) of the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992. for the purposes of entitlement of the holder of the securities or units, as the case may be, to receive dividend, income, or additional securities or units without any consideration, as the case may be. Securities includes stocks and shares. Unit shall mean - (i) a unit of a business trust defined in clause (13A) of section 2 ; (ii) a unit defined in clause (b) of the Explanation to section 115AB ; or (iii) beneficial interest of an investor in an Alternative Investment Fund, defined in clause (b) of regulation 2(1) of the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992, and shall include shares or partnership interests.