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 and acquisition cost are to be considered; 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
