How are capital gains from the sale of a stock split taxed?
When shares are received as part of a stock split, the total number of shares held by an investor increases, and the total value of the investment remains the same.
Points to note:
1. The holding period and hence capital gains are determined based on the holding period of the original shares.
2. The acquisition cost is calculated by dividing the total value of investments by the total number of shares held after the stock split.
For example:
- The face value of Tata Motors shares is Rs. 10 per share.
- Mr. Kumar buys 100 shares of Tata Motors on January 2020 at Rs. 200 per share
- The company announces a stock split from a face value of Rs.10 to Rs. 5 in January 2021. As a result, Mr. Kumar will have 200 shares (100 original shares + 100 bonus shares).
- In March 2021, he sells these 200 shares at Rs. 210 per share.
- Since the original 100 shares were held for more than a year, LTCG tax will be applicable to the entire sale value. Had the shares been sold within 12 months of purchase, STCG tax would have been applicable.
Particulars | Original Shares (Qty x Price) | Amount | Split Shares (QtyxPrice) | Amount |
|---|---|---|---|---|
| Purchase Price | 100 x 100 | Rs. 10,000 | 100 x 100 | Rs. 10,000 |
| Sale Price | 100 x 210 | Rs. 21,000 | 100 x 210 | Rs. 21,000 |
| Capital Gain | Rs. 11,000 | Rs. 11,000 | ||
| Holding Period | more than 12 months | less than 12 months | ||
| Type of Capital Gain | LTCG | STCG |
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