1:1, 2:1, 3:1, 4:1, 5:1 Are Popular Bonus Shares: But Are You Taxed For Bonus Issue Allotment?

Bonus shares are one of the many corporate actions that listed companies announce on several occasions. Bonus shares are like incentives, which are free of cost given to investors. Under this corporate action, new shares are issued at the existing Face Value of equity shares of the company. Hence, the face value remains the same post-bonus issue.

But are bonus shares taxed?

As per brokerage Geojit's website, there are two main points to remember regarding bonus issues. Firstly, the holding period and acquisition cost are to be considered and hence, capital gains for the original and bonus shares are calculated separately.

Secondly, the acquisition cost for bonus shares is considered to be 0.

So let's suppose, if Mr X buys 100 shares of Bharat Electronics in June 2020 at Rs 200 per share. And the company announces 1:1 bonus ratio in June 2022. Then Mr X will get 100 bonus shares on existing 100 shares, which will take the total number of shares to 200 shares but reduce the shares capital price. Later on, Mr X decided to sell 100 shares in October 2022.

What will be the tax implications? Here's how Geojit explains.

The original 100 shares were held for more than 1 year, and hence LTCG tax will be applicable. But the bonus 100 shares were held for less than 1 year, and hence STCG tax will be applicable. The acquisition cost considered for bonus shares is 0. However, the capital gain on the sale of bonus shares is equal to its selling price.

So the catch here is that when bonus issues are allotted, there is basically no tax imposed on the allotment. However, during the sale of these bonus shares, tax will be levied just like any other capital gains tax on selling stocks.

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