Example
Suppose we purchase 4000 Mutual Funds units @ 10 each on 10 June i.e. Rs 40000
We are allotted 1000 Bonus Mutual Funds Units on 14 June
So now we have 5000 Mutual funds units at a cost of 40000 (Rs 8 per Mutual Fund)
What is tax treatment if
We sell on 17 June Whole 5000 Mutual funds Units @ Rs 8,
View answer
Sales Price=5000*8=Rs40000
Cost=4000*10+1000*0=40000+0=Rs 40000
Net Profit on Shares=0
We sell on 17 June Only 4000 Mutual funds @ Rs 8,
View answer
This transaction is called Dividend Stripping Transaction as per Section 94(8) as we have retained some of bonus units
Sales Price of Units=4000*8=32000
Cost of Units=4000*10=40000
Loss on Units=8000
This loss of 8000 to be ignored
Also loss of 8000 will be cost of Balance 1000 Units as per Section 94(8)
We sell on 17 June Only 4400 Mutual funds Units @ Rs 8,
View answer
This transaction is called Dividend Stripping Transaction as per Section 94(8) as we have retained some of bonus units
Sales Price of Units=4400*8=35200
Cost of Units=4000*10=40000
Loss on Units=35200-40000=4800
This loss of 4800 to be ignored
Also loss of 4800 will be cost of Balance 600 Units as per Section 94(8)
What is the record date in above cases
View answer
Record Date is date of earning bonus i.e. 14 June
Section 94(8)
If a person purchases units of Mutual Fund within 3 months before record date
And earns bonus unit on it
And sells such original units (whether whole or in part) within 9 months of such date
While continuing to hold all or any of the bonus units
Then loss on sale of such units shall be ignored
This Loss ignored will be cost of purchase of additional units
Note: - If bonus unit also sold then this section not applicable.
This Section is only applicable in case of Mutual Fund Units and not Shares
Q1
Mr A Purchased 10000 Mutual Fund units of 10 each i.e. for Rs 100,000 on 1 Jan.
On 31 Jan, He received 5000 Mutual fund units as bonus
He sold 11000 existing units for Rs 9 each on 12 Feb. while continuing to hold 4000 bonus shares
Is it a bonus stripping transaction?
View answer
Record date is 31 Jan
Purchase was made within 3 months of Record date
and
Sale was made within 9 months of record date
Also he continues to hold all or some of bonus shares
Hence it is a bonus stripping transaction.
What is the treatment on Sale made on 12 Feb of existing units
View answer
Loss on sale of Mutual fund units = 11000x9-100000=99000-10000=(1000)
Such loss will not be allowed to be carry forward. It will be ignored
Suppose Balance 4000 Bonus Shares were * 9 each were sold on 25 Feb
What is the taxable treatment
View answer
Cost price of bonus units = loss Ignored
= 1000
Price of bonus units = 4000x9=36000
Capital gain on sale of units
= 36000 – 1000
= 35000
Q2
Suppose whole 15000 shares were sold together @ 9 each
View answer
In this case, Bonus stripping not applicable as all bonus shares were sold
Selling price = 15000x 9 = 135000
Less
Cost price 100,000
(10000*10)
Capital gain 35000