Indian Income Tax Act, 1961 dedicates separate chapter for provisions dealing with the avoidance of tax. One of the provisions is in relation to the “avoidance of tax by certain transactions in securities”. This includes Dividend stripping and Bonus Stripping.

Specially in case of “Bonus Stripping”, as per the erstwhile provision, only units of “Mutual funds” were covered. Consequently, strategies were employed / common, wherein after the bonus issuances, investors used to book losses in the equity and on the other hand offset the gains accrued in the “Derivatives”. 
 
Simply because equity shares were taxable at 10 or 15 percent, whereas Derivatives are taxable at 30 percent.
 
With effect from 1 April 2022, strategies akin to the above would have to be re-evaluated as any loss due to Bonus stripping will now require to be ignored. 

Above proposed amendment would be of more relevance to the big investors e.g. HNIs, Fund Houses, overseas institutional investors etc. and due monitoring will be required to track such losses specially in case of high volumes. This would also have impact of complexity of capital gain computations.