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Capital Gain on Sale of Bonus Shares:

Bonus shares are received in a specific ratio to the original shares without incurring any extra cost. There is no tax liability at the time of issue of bonus shares. Tax liability may arise at the time of sale of bonus shares and that too will depend on period of holding of bonus shares. People generally get confused regarding taxability of original shares and bonus shares. The treatment is however simple and clear about the taxability of original and bonus shares. Lets discuss the taxability issues in detail.

Period of Holding of Bonus Shares


Holding period of the Bonus shares is calculated from the date of acquisition of Bonus shares. The date of acquisition of bonus shares is actually the date of allotment of bonus shares. Holding period o the bonus shares is thus calculated from the date of acquisition/allotment of shares till the date such bonus shares are sold.

Cost of Acquisition of Bonus Shares

As bonus shares are received free of cost, the cost of acquisition of bonus shares from tax point of view is taken as zero/nil.

Calculation of Capital Gain on sale of Bonus Shares

As cost of acquisition of bonus shares is taken nil, total sale consideration of bonus shares will be the capital gain.

If bonus shares are sold within 12 months of allotment the gain on sale will be short term capital gain and will be taxable @ 15% however if bonus shares are sold after 12 months of allotment the gain on sale will be long term capital gain and the same will be exempt from tax or non taxable.

For Example: Suppose X gets 100 shares of a company as bonus shares. He sells the same @Rs. 150 per share. Now cost of acquisition being nil, the total sale consideration of Rs. 150 * 100 shares = Rs. 15000 will be capital gain.



Period of Holding of Original shares

Holding period of original shares is calculated from the date of purchase of such shares till the date of sale of the same. The date of issue of bonus shares is not at all relevant for calculation of holding period of original shares.

Cost of Acquisition of Original Shares

Cost of acquisition of Original Shares will be the actual purchase cost of those shares.

Calculation of Capital Gain on sale of Original Shares

If shares are sold within 12 months of allotment the gain on sale will be short term capital gain and will be taxable @ 15% however if shares are sold after 12 months of allotment the gain on sale will be long term capital gain and the same will be exempt from tax or non taxable.

For Example: Suppose X purchased 100 shares of a company @ Rs. 100 per share. Company issues Bonus shares in the ratio of 1:1, thus X gets  100 shares as bonus shares. He sells all the shares @ Rs. 150 per share.

Capital Gain on sale of original shares and on Bonus shares will be calculated separately as explained below:

Sale consideration of Original Shares (100*150)
Rs. 15000
Less  Cost of Acquisition of Original Shares (100*100)
Rs. 10000
Capital Gain on sale of Original Shares
Rs.  5000


Sale Consideration of Bonus Shares (100*150)
Rs. 15000
Less Cost of Acquisition of Bonus Shares (NIL)
-
Capital Gain on sale of Bonus Shares
Rs. 15000


Important Points:
  1. FIFO (First in First out) method shall be followed at the time of sale of the shares. It simply means the shares allotted first must be treated as sold first and their taxability shall be determined accordingly.
  1. It is advisable from the tax point of view to sale the bonus shares after 12 months of allotment. After holding the bonus shares for 12 months the gain on sale will be long term and terefore it will be non taxable.
Some quick links:
Short term capital gain on sale of shares
Taxability issues of STCG on sale of shares







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