Dividend and Income Stripping Transactions - (New) Section 175(8) / (Old) Section 94(7)

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.... • receiving tax-exempt dividend or exempt income, • selling the securities or units after the record date at a lower price, and • claiming the resulting capital loss as a deduction against other taxable gains. Without this provision, a taxpayer could effectively convert exempt income into a deductible capital loss, thereby reducing overall tax liability without suffering a real economic loss. Thus, Section 175(8) ensures that tax-exempt income cannot indirectly generate a deductible tax loss. Essential Conditions The section applies only when all of the following conditions are satisfied. Condition 1 - Purchase Before Record Date The taxpayer must purchase or acquire: • securi....

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....f Information: The AO may require details of: • all securities owned by the person; or • securities in which the person had a beneficial interest, during the period specified in the notice. • Purpose of Information: The information is sought to: • facilitate the application of the provisions of Section 175; and • determine whether income-tax has been borne on the interest arising from those securities. Meaning of Record Date  "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, where- • (A) "Administrator" means t....

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.... an Alternative Investment Fund, referred to in clause (b)(iv), and shall include shares or partnership interests. Under Section 94(7) of the Income Tax Act, 1961 [ Upto 31.03.2026 ] 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 exe....

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....he person had a beneficial interest, during the period mentioned in the notice. The AO may ask for such particulars as he considers necessary: • for the purposes of Section 94, and • for finding out whether income-tax has been paid on the interest received from those securities. 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 (....