Tax planning by dividend stripping found to be legal

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Taxpayers can reduce their tax liabilities by selling units of a mutual fund at a discount soon after receiving tax-free dividends. Ruling in Commissioner of Income Tax v Walfort Share & Stock Pvt Ltd, the Supreme Court held that such dividend stripping transactions, primarily carried out to avoid paying tax, are legal.

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The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.

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