Bonus Stripping Loss Disallowance Calculator

Section 94(8) Rules · Stocks & Mutual Funds · Cost Basis Shift

Calculate exact disallowed loss on original shares and updated cost basis for bonus units under Section 94(8).

✓ Sec 94(8) Loss Shift ✓ Bonus Units Cost Base

🎁 Original & Bonus Shares Transaction Details

Disallowed Loss (Transferred to Bonus Base)

₹—

Allowable Loss for ITR: ₹0

Sec 94(8) Bonus Cost Shift Summary

Gross Loss Incurred—
Allowable Loss for ITR Set-Off₹0 (100% Disallowed)
New Total Cost Basis of Bonus Units—
Cost per Bonus Unit —

Section 94(8) Bonus Stripping Guide

What Triggers Section 94(8)?

Section 94(8) triggers when you purchase shares or mutual fund units within 3 months prior to a bonus issue record date, receive bonus shares, and sell original units at a loss within 9 months post record date while holding bonus units.

Cost Basis Shifting Mechanism

Unlike dividend stripping (where loss is permanently forfeited), under bonus stripping the disallowed loss on original units is ADDED to the cost basis of the bonus units. Cost per Bonus Unit = Disallowed Loss / Bonus Units Retained.

💡 Pro Hack: Sell Bonus Units Together

If you sell BOTH original and bonus units within the 9-month window, Section 94(8) does not apply and your net actual capital loss can be claimed in full.

⚡ Budget 2022 Expansion

Starting April 1, 2022, Section 94(8) applies to equity stocks and shares in addition to mutual fund units.

🛡️ Future Tax Savings

Increasing the cost basis of bonus units reduces your taxable capital gains when you eventually sell those bonus shares in future years.

⚠️ 3 Common Bonus Stripping Mistakes

  • • Setting Off Original Loss in ITR: Attempting to set off the short-term capital loss of original units against current gains will cause ITR defect notices.
  • • Assuming Bonus Shares Have ₹0 Cost: Under Sec 94(8), bonus shares acquire a non-zero cost of acquisition equal to the disallowed loss.
  • • Ignoring the 9-Month Sale Window: Selling original units on Day 271+ after record date bypasses 94(8) disallowance completely.

Frequently Asked Questions

What is Bonus Stripping under Section 94(8)?
Bonus stripping is a tax planning technique where an investor buys shares or mutual fund units within 3 months prior to a bonus issue record date, receives tax-free bonus units, and sells the original units at a loss within 9 months after the record date while retaining the bonus units.
How does Section 94(8) disallow capital losses?
Under Section 94(8), the capital loss arising from the sale of original units is completely DISALLOWED. Instead, this disallowed loss is treated as the cost of acquisition for the newly received bonus units.
Does Section 94(8) apply to stocks as well as mutual funds?
Yes! Budget 2022 expanded Section 94(8) to cover BOTH equity shares/stocks and mutual fund units. Previously it applied only to mutual funds.
What are the time period triggers for Section 94(8)?
1. Purchase of original units: Within 3 months prior to record date.
2. Sale of original units: Within 9 months after record date while holding bonus units.
What happens to the cost of acquisition of bonus units under Sec 94(8)?
Normally, bonus shares have a cost of acquisition of ₹0. However, under Section 94(8), the disallowed loss on the original shares is added as the cost of acquisition for the bonus shares, reducing future capital gain when bonus shares are eventually sold.
What if I sell BOTH original and bonus units within 9 months?
If you sell ALL original and bonus units within the 9-month window, Section 94(8) disallowance does not trigger because no bonus units are retained. The net loss can be set off normally.
Is Section 94(8) loss disallowance mandatory?
Yes, Section 94(8) is a statutory provision. Taxpayers cannot choose to claim the capital loss on original units if the conditions are met.
How to report Bonus Stripping in ITR-2 / ITR-4?
Report the transaction under Schedule CG. The software will disallow the capital loss on original units and adjust the cost basis of bonus units.

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