The Budget 2022 has tried to explain the intended meaning, bring parity, and combat tax evasion in a variety of ways. One such method is called Dividend Stripping.
Dividend stripping was used by the investors to evade taxes by recording a loss to offset capital gains income and earning tax-free dividends. To deter dividend stripping, the finance minister implemented Section 94(7) of the Income Tax Act in Budget 2022. Furthermore, the DDT (Dividend Distribution Tax) was discontinued, requiring shareholders to pay tax on dividend income.
You can read more about Dividend Stripping here -
Got any other questions? Ask them away and we’d love to help you out !!
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As a shareholder, what benefit can I expect from dividend stripping?
If the securities or units have been bought over 3 months prior to the record date, and sells within 3 months post the record date and incurs STCL or LTCGL, will that be available for set off?
Hi @Utkarsh_agarwal
As a shareholder , you can expect the following benefits -
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You can set off STCL on the sale of shares or units against other capital gains income, both STCG and LTCG, and thus leads to a reduction in tax liability…
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You earn tax-free dividends
Hope this helps !!
@Sakshi_Shah1 can you help ?
What does the section 94(7) of income tax act state?
Hi @Rishika_Reddy
As per section 94(7) of the Income Tax Act-
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An investor purchases securities or units within three months of the dividend declaration record date and
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After the record date of dividend declaration, the investor sells such securities within 3 months or sells units within 9 months.
Hope this help !!
A post was merged into an existing topic: Bonus Stripping
Hey @HuseinContractor
If the securities or units have been bought over a period of 3 months prior to the record date, if does not satisfy the first condition laid down by Section 94(7) of the Income Tax Act.
Thus, it is not treated as Dividend Stripping and the loss would be available for set off.