What is Bonus Stripping and how is it managed by MProfit?

In this tutorial, we will explain how to handle Bonus Stripping in MProfit.

Bonus stripping is when an investor buys shares of a company that is about to give out bonus shares. 

After getting the bonus shares, the investor sells the original shares at a lower price to show a loss. 

This loss helps reduce taxes. 

The investor then holds the bonus shares for more than a year and sells them to receive a long-term capital gains tax benefit.

There is a new rule as per section 94(8) to stop people from doing bonus stripping.

For the purpose of this guide, we will be using Allcargo Logistics as an example.

Follow the steps below:

Step 1: We will log in to our MProfit account and begin with some buy-and-sell transactions that have already been added for Allcargo Logistics.

Step 2: Let's look at the transactions for this specific script. 

On November 1, 2023, I bought 100 shares at fifty rupees per share. 

Then, on January 2, 2024, I received a bonus of 300 shares. After that, I sold 100 shares on February 10, 2024. 

According to the First-In-First-Out (FIFO) method, I incurred a loss of three thousand. 

However, when factoring in bonus stripping, my capital loss would be zero.

Step 3: To generate the capital gains report, navigate to Reports.

Step 4: Select Capital Gains.

Step 5: Next, select Capital Gains - ITR Format.

Step 6: Click on Stocks.

Step 7: Select the desired Period.

Since all transactions occurred in the current financial year, we will keep the period as the current financial year.

Then click Generate Report.

After generating the report, you will notice that the capital gain is zero. 

This is due to the application of the bonus stripping rule. 

The rule applies when a stock is bought within three months of the bonus record date and sold within nine months of the record date. 

Therefore, the capital gain is zero, and you are eligible for the bonus stripping benefit.

This is how you can seamlessly manage Bonus Stripping in MProfit!