Calculating Tax on Bonus Shares: A Step-by-Step Guide with Holding Period for Long and Short Term

For bonus shares, the holding term is calculated from the date of allotment until the date of sale.
A Step-by-Step Guide to Calculating Tax on Bonus Shares.
#bonusshare #bonusshares
Bonus share tax
Bonus shares have no tax repercussions for shareholders. Yet, the bonus ratio affects how much the market price per share changes.
How are bonus shares taxed?
Bonus shares should not be included in ITR filings, and when it comes to share buybacks, ITR filings should consist of this information as Exempt Income.

Income tax regulations apply to bonus share sales. The corporation awards current shareholders bonus shares in proportion to their existing shares. For bonus shares, the holding term is calculated from the date of allotment until the date of sale. When bonus shares are sold, tax is charged at the same rate as it is on regular shares.

Tax is computed when bonus shares are sold. The cost of the bonus share would be the stock’s closing price on January 31, 2018, if the bonus shares were given before that date. The price of the bonus shares would be zero if they were issued after January 31, 2018.

A flat 15% income tax will be applied if bonus shares are sold within a year of issuance since income tax on bonus share transactions is calculated on a FIFO (First In First Out) basis. The bonus share beneficiary is required to pay a 10% tax on any income exceeding Rs 1 lakh derived from the issuance of bonus shares if the bonus shares are sold after being held for more than a year.