The qualified answer for FY 2025–26
A company cannot claim a loss merely because its broker statement records a sale below cost. Where all section 94(8) conditions apply, the loss on the relevant original securities or units is ignored for taxable-income computation and becomes the deemed acquisition cost of the additional securities or units still held at that sale. This guide addresses that two-sided reconciliation for AY 2026–27 under the Income-tax Act, 1961. The Department’s transition guidance confirms that FY 2025–26 / AY 2026–27 remains governed by the saved 1961 Act framework even when the return is filed after 1 April 2026. This guide does not substitute later tax-year section numbers or assume a particular capital-gains rate.
Read the applicable text: Income-tax Department: Act incorporating Finance Act 2025, section 94(7)–(8) and explanation.
Build the statutory fact pattern
Section 94(8), in the Department’s Act incorporating Finance Act 2025 amendments, covers acquisition within three months before the record date, additional securities or units allotted without payment because of that holding, and disposal of all or some original holdings within nine months after the record date while some or all additional holdings remain. Securities include stocks and shares. Use the explanation’s defined scope of units, which includes business-trust units, units within the section 115AB explanation and the specified AIF beneficial interests; do not treat every instrument called a unit as automatically covered. Test every condition cumulatively; the word bonus on a transaction description proves neither acquisition timing nor the retained holding.
Identify holdings before calculating the adjustment
Create one corporate-action file containing the issuer’s record-date announcement, original acquisition contract notes, demat or unit-account statements, allotment evidence and sale records. Separate original and additional quantities. Reconcile other purchases and sales of the same instrument before assigning cost. Do not choose convenient lots simply to produce a preferred loss. For capital-gains computations involving securities held through a depository, section 45(2A) requires first-in-first-out identification for acquisition cost and holding period. Where partial disposals or other holdings complicate the working, apply the relevant identification rules before posting the section 94(8) adjustment.
Keep the income adjustment and cost movement together
Use linked columns for ordinary sale computation, ignored loss, loss remaining for tax purposes and deemed cost of retained additional holdings. The statutory cost shift is attached to additional holdings retained on the relevant disposal date, not to a cash reimbursement or an expense deduction. Preserve that cost even if accounting carrying values follow a different measurement basis. For later sales, reconcile the remaining tax cost rather than reusing the original loss as a second deduction.
Separate neighbouring issues
Section 94(7) concerns a different dividend or income-stripping pattern and includes an exempt-income condition. Do not import that condition into section 94(8), or assume taxable dividends alone switch off bonus stripping. Conversely, failure of a section 94(8) condition does not affirmatively validate a loss under every other provision. Income head, asset character, transaction genuineness, cost identification and applicable set-off rules still require their own analysis.
Close the return working without inventing a field
Reconcile the legal adjustment to the actual income-head computation and the applicable AY utility before transferring figures. Retain a bridge from broker loss to tax loss and from corporate-action quantities to closing tax cost. A successful portal validation is not a decision on section 94(8). This article deliberately supplies a computation-control method rather than asserting an unverified ITR schedule serial number.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Full original disposal with all bonus shares retained
Assume all statutory conditions are satisfied: original shares cost ₹1,00,000 and sell for ₹60,000, while 100 bonus shares remain. The ₹40,000 loss is ignored; the resulting tax loss from this sale is ₹0. The retained bonus holding receives ₹40,000 deemed cost, or ₹400 per share on these uniform facts.
Illustrative example 2: Partial disposal of originals
A separately established original lot sold has cost ₹50,000 and proceeds ₹30,000. All 100 bonus shares attributable to the tested holding remain, and all other conditions are met. The ₹20,000 loss is ignored and assigned to those retained additional shares: ₹200 each. Keep unsold originals in a separate cost column; do not shift their remaining acquisition cost as well. If a later qualifying original disposal causes another loss adjustment, roll it forward to the then-retained additional holding without posting this same ₹20,000 twice.
Illustrative example 3: Different bonus quantity
Original holdings cost ₹1,00,000 and realise ₹70,000. Two hundred additional units remain and the conditions apply. The ignored ₹30,000 becomes their aggregate deemed cost, equivalent to ₹150 per unit on these facts. The bonus ratio changes the unit figure, not the ₹30,000 loss excluded.
Illustrative example 4: A profitable original sale
Original securities cost ₹1,00,000 and sell for ₹1,20,000. The ordinary difference is a ₹20,000 gain. Section 94(8)’s loss-ignoring mechanism supplies no ₹20,000 loss adjustment or corresponding deemed bonus cost. The gain and the additional holding’s cost must be examined under their applicable ordinary rules.
Illustrative example 5: Test calendar months, not a guessed day count
An acquisition on 1 May 2025 precedes a 30 June 2025 record date by 60 days and falls within three calendar months; a 1 September 2025 sale is 63 days after that record date and within nine months. An acquisition on 15 January 2025 is 166 days before the same record date and lies outside that acquisition window. The latter does not satisfy section 94(8)(a); these day differences illustrate the dates and do not replace calendar-month testing.
Illustrative example 6: Later sale and duplicate deduction control
Return to the ₹40,000 deemed bonus cost in the first illustration. If the 100 retained bonus shares later sell for ₹55,000, the assumed ordinary proceeds-minus-cost difference is ₹15,000 before other applicable adjustments. Claiming the original ₹40,000 loss as well would count the same economic cost twice. The original permitted loss remains ₹0; the later computation uses the documented ₹40,000 cost.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Fix the period | FY 2025–26 and AY 2026–27 on the working-paper cover. |
| 2 | Identify the instrument | Issuer, security or unit description and account identifiers. |
| 3 | Establish the record date | Issuer or fund corporate-action announcement. |
| 4 | Check original acquisitions | Dated contract notes and the three-calendar-month test. |
| 5 | Prove additional allotment | Quantity credited without payment on the relevant holding. |
| 6 | Identify original disposals | Sale notes, quantity reconciliation and nine-month test. |
| 7 | Verify retained additional holdings | Statement position on each tested disposal date. |
| 8 | Calculate the ignored loss | Ordinary computation with a separate legal-adjustment column. |
| 9 | Transfer deemed cost once | Linked retained-bonus lot register and later-sale roll-forward. |
| 10 | Reconcile the return | Income-head working, closing quantities and retained evidence. |
Sixteen practitioner FAQs
1. Does this apply only to individuals?
No. The provision uses any person; a company must test its transactions too.
2. Are shares within scope?
Yes. The section’s explanation includes stocks and shares within securities.
3. Does every bonus issue trigger a disallowance?
No. All acquisition, allotment, disposal and retained-holding conditions must be met.
4. Is the acquisition window measured from the allotment date?
The statutory test uses the record date. Obtain that date separately.
5. Is nine months the original acquisition holding period?
No. It is the disposal window after the record date specified in clause (c).
6. Must every original security be sold?
No. The provision refers to disposal of all or any of the original holdings.
7. Must every additional security remain?
No. Continued holding of all or any additional securities or units is relevant.
8. Is the ignored loss permanently lost without a cost effect?
The subsection expressly deems it acquisition cost of the relevant additional holdings retained on the sale date.
9. Can accounting loss establish the tax deduction?
No. Accounting recognition and the statutory taxable-income adjustment require a reconciliation.
10. Does a taxable dividend prevent section 94(8) applying?
The exempt-income requirement in section 94(7) is not a condition written into section 94(8).
11. Does a gain produce an ignored loss?
No. First establish whether the tested purchase and sale actually yield a loss.
12. Can the cost be allocated to sold bonus holdings automatically?
The statutory wording targets additional holdings retained on the relevant original sale date. Trace the actual sequence.
13. Can a loss outside these windows always be claimed?
No. Other income, cost, identification and loss restrictions remain relevant.
14. Is the broker’s adjusted average enough?
Not necessarily. Apply any required FIFO identification and retain a separate tax-cost bridge explaining the corporate action and statutory adjustment.
15. Should the original loss be claimed again when bonus shares sell?
No. Carry the supported deemed cost into the later computation without duplicating the excluded loss.
16. Does this guide prescribe an ITR row or tax rate?
No. Confirm the relevant income head, applicable AY utility and rate independently for the actual transaction.
Official sources
Income-tax Department: Act incorporating Finance Act 2025, section 94(7)–(8) and explanation
Income-tax Department: repeal and transition guidance, including AY 2026–27