Sold stocks, MFs after dividend declaration? You may be able to claim losses
Now that equity dividends are taxable, why should a short-term capital loss on sale of those shares or mutual fund schemes be disallowed, if they are sold immediately after the declaration of dividend?
Answer by Harshad Chetanwala, founder, Mywealthgrowth.com
Your point on allowing short-term capital loss on sale of units or shares immediately after dividend declaration is valid as the received dividend is now taxable in the hands of investors. As per section 94(7) of Income Tax Act, there are three clauses that need to be satisfied to disallow the short-term capital loss in case of sale of units or shares. One of the clauses states the dividend or income has to be exempted. With effect from 1 April 2020, dividends are taxable in the hands of the shareholders or unitholders. Hence, this clause of Section 94(7) is not getting satisfied short-term capital loss on sale of such shares or mutual fund units should be allowed, even if they are sold immediately after the declaration of dividend.
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