How are capital gains from the sale of bonus shares taxed?
Bonus shares are taxed based on the holding period.
Points to note:
1. The holding period, acquisition cost and hence capital gains for the original and bonus shares are calculated separately.
2. The acquisition cost for bonus shares is considered to be 0.
For example:
- Mr Rakesh buys 100 shares of Tata Motors in June 2019 at Rs. 200 per share.
- The company announces a bonus issue in a 1:1 ratio in January 2021- For every share held, a shareholder is allotted 1 bonus share. Hence, Mr Rakesh is allotted 100 bonus shares.
- In March 2021, he sells these 200 shares at Rs. 300 per share.
Since the capital gains for the original shares and bonus shares are computed separately:
- The original 100 shares were held for more than 1 year and hence LTCG tax will be applicable.
- 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. Hence the capital gain on the sale of bonus shares is equal to its selling price.
Particulars | Original Shares (Qty x Price) | Amount | Bonus Share (Qty x Price) | Amount |
| Purchase Price | 100 x 200 | Rs. 20,000 | 100 x NIL | NIL |
| Sale Price | 100 x 300 | Rs. 30,000 | 100 x 300 | Rs. 30,000 |
| Capital Gain | Rs. 10,000 | Rs. 30,000 | ||
| Holding Period | more than 12 months | less than 12 months | ||
| Type of Capital Gain | LTCG | STCG |
No tax is levied at the time of the allotment of bonus shares. Taxes are applicable only on the sale of these shares.Still need help? Create Ticket
