Bonus Shares, Stock Splits, Dividends: Can These Rewards Increase Your Tax Bill? Check Before Filing ITR

Corporate actions like bonus issues, stock splits, and dividends always catch stock market investors' attention, but the taxation rules related to these rewards often go unnoticed. As the income tax return (ITR) filing season is all set to begin, let's understand tax implications related to dividends, stock splits and bonus issues.

Is Your Bonus Issue, Stock Split and Dividend Taxable?

All these three corporate actions are completely different and that's why their tax treatment is also different.

Tax on Stock Split

During a stock split, investors get additional shares of a stock which they are already holding. Stock split divides a stock into multiple shares and effectively lower the price of each share. Just like your slice of cake is cut into two but your overall share of the cake remains same. Investors will be taxed under Long Term Capital Gain Tax (LTCG) or Short Term Capital Gain Tax (STCG) when they will gain profit by selling shares (including stock split shares).

Tax on Bonus Issue

A bonus issue is an offer of additional free shares to existing shareholders. Understand it like receiving an extra cake from bakery at no cost. Since shareholders do not get any money in this corporate action, bonus issue is not taxable unless, they sell the stock and gain profit.

Dividend Taxation

A dividend is a fixed amount of money received by an existing shareholder based on the number of stocks they hold. Unlike bonus issue and stock split, shareholders receive a certain amount of money in their account here, and that's why the dividend income is taxable. If the dividend amount exceeds Rs 10,000 from a single company or mutual fund, then it is taxed under the Tax Deducted at Source (TDS).

How To Report Dividend, Bonus Issue, Stock Split in ITR?

Investors can include their income from other sources in ITR-1 and ITR-2. For TDS on dividends, they have to file form 26AS and AIS. To report bonus issue and stock split related incomes after selling shares, investors have to file ITR 2 for capital gains tax.

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