How Do Bonus Shares Affect Capital Gains?
Bonus shares require special capital-gains treatment because their acquisition cost and acquisition date are not simply the same as those of the original shares. The relevant statutory rules should be applied when the bonus shares are sold.
Quick Answer
Bonus shares have specific rules for cost and holding period. Keep the corporate-action records and distinguish the bonus lot from the original shares when calculating capital gains.
Why Bonus Shares Need Separate Treatment
A bonus issue creates additional shares without a normal purchase transaction. The tax law therefore contains specific rules for their cost and holding period.
Cost of Bonus Shares
The applicable cost-of-acquisition rule for bonus shares can differ from the cost of the original holding. Do not simply divide the original purchase cost across all shares without checking the statutory rule.
Holding Period of Bonus Shares
The holding period for bonus shares is determined under the applicable tax provisions and can differ from the original shares' acquisition date.
Keep Corporate-Action Records
Broker and demat records showing the bonus issue, record date, allotment and subsequent sale can help establish the correct lot details.
Why FIFO Still Matters
When original and bonus shares of the same security are sold, transaction matching can require careful lot-level analysis.
Important
Bonus-share rules have changed over time. The acquisition date, issue date and transfer date should be considered under the rules applicable to the transaction.
Frequently Asked Questions
Is the cost of bonus shares always zero?
The tax treatment depends on the applicable statutory rule and the date of the bonus issue. It should not be generalized across all historical transactions.
Do bonus shares have a separate holding period?
Their holding-period treatment is governed by specific rules and should be calculated separately from the original shares where required.
Can a broker statement alone handle bonus shares correctly?
It can provide useful data, but corporate-action records should also be checked.
Related EZTax Resources
- What Is Capital Gain in Income Tax?
- What Is Short-Term and Long-Term Capital Gain?
- How to Calculate Capital Gain From Shares?
- How to Report Capital Loss in ITR?
- Which ITR Form Should I Use for Capital Gains?
- Does AIS Show Capital Gains?
- Capital Gains Income Tax Guide
Official Sources
For current capital-gains and ITR guidance, refer to the Income Tax Department resources for the relevant assessment year.
Income Tax Department — ITR-2 FAQ
Income Tax Department — Set-off / Carry-forward of Losses FAQ
