InvestorQ : How is the sale of Bonus share taxed?
Anusha Savla made post

How is the sale of Bonus share taxed?

Answer
user profile image
Shreya Karn answered.
1 year ago


Before understanding the tax on the sale of bonus shares, one should understand what the bonus share is. When a company allots shares for free to their existing shareholders, these shares are referred to as a bonus. A shareholder does not pay any amount of bonus shares, so there is no cost of acquisition in case of bonus share. Bonus share is issued in proportion. So, if the bonus share is issued in the ratio of 1:1, then it implies that for every one share the shareholder will receive one bonus share.
For example, if you have bought 50 shares of a company on 1st Feb 2018 at Rs. 50, and on 10th Mar 2019 the company announces bonus shares of 1:1 ratio. Then your demat will be show extra 50 shares. Thus, your demat account will show 100 shares. Now assume if you want to sell the 100 shares on 14th November 2019 at a price of Rs. 150, then the tax computed on the sale of capital will be different for the 50 bonus shares.
The original shares bought will attract long-term capital gain tax as the period for holding those were more than a year, whereas capital gain on sale of bonus shares will attract short-term capital gain tax as the holding period for the bonus share was less than a year.
Happy investing!