It’s
not a nice day for cash-rich companies. Several MFs were pandering to the needs
of India Inc. Cash-rich companies parked surplus funds and earned tax free
dividends. Post-dividend, when the NAV of the units declined, capital losses
were conveniently booked.
But it’s time to bid adieu to such practices. At present there are curbs on dividend stripping. If a company buys units or securities three months prior to the record date for declaration of dividend or interest, and sells or transfers the same within three months of the record date, the capital loss, to the extent of the tax free income is ignored.
In order to provide a further deterrence to tax avoidance, the Finance Bill provides for a longer period of holding the units after the record date. The holding period of three months post-record date is now extended to 9 months.
The investor, be it India Inc or anyone else, has to hold the scrips for 12 months or more. “Capital gains on sale of scrips after a holding period of 12 months are long-term in nature, and there is now no tax on long-term capital gains,� points out Dinesh Kanabar, partner, RSM & Co.
The Bill also curbs bonus stripping. When bonus shares are issued, the NAV falls. Sale of original shares results in a loss. Now capital loss against original shares will be ignored.
But it’s time to bid adieu to such practices. At present there are curbs on dividend stripping. If a company buys units or securities three months prior to the record date for declaration of dividend or interest, and sells or transfers the same within three months of the record date, the capital loss, to the extent of the tax free income is ignored.
In order to provide a further deterrence to tax avoidance, the Finance Bill provides for a longer period of holding the units after the record date. The holding period of three months post-record date is now extended to 9 months.
The investor, be it India Inc or anyone else, has to hold the scrips for 12 months or more. “Capital gains on sale of scrips after a holding period of 12 months are long-term in nature, and there is now no tax on long-term capital gains,� points out Dinesh Kanabar, partner, RSM & Co.
The Bill also curbs bonus stripping. When bonus shares are issued, the NAV falls. Sale of original shares results in a loss. Now capital loss against original shares will be ignored.
