Tax on Bonus Shares, Splits, Buybacks and Rights

Tax on bonus shares works differently from tax on a dividend. You pay nothing when the company credits the new shares. However, tax arrives when you sell them, and the cost of acquisition is nil. This guide covers bonus shares, stock splits, rights issues, buybacks and dividends for a resident individual who holds listed shares in India.

It builds on the dividend meaning guide and the dividend tax guide. For dividends, read is dividend income taxable. Check the dates of live events on our upcoming bonus, split and rights page, and test your own numbers with the stock split calculator. More explainers sit in the Shareholding & Fundamentals category.

Quick answer: Bonus shares carry no tax when you receive them. Their cost of acquisition is nil, so the full sale price becomes a capital gain, and the holding period starts on the allotment date. A stock split triggers no tax and only divides your cost per share. A rights issue creates a new purchase at the price you pay. A buyback is taxed as a capital gain from 1 April 2026.

Key Takeaways

• Receiving bonus shares or a split is not a taxable event.
• Bonus shares have a nil cost, so the whole sale price counts as gain.
• Listed shares held over 12 months pay 12.5% on gains above Rs 1.25 lakh a year.
• Listed shares sold within 12 months pay 20% on the gain.
• A split keeps your total cost and your holding period unchanged.
• Rights shares have their own cost and their own holding period.
• Buyback proceeds are taxed as capital gains from 1 April 2026.

Tax on Bonus Shares at a Glance

Corporate action	Tax when you receive it	Cost of acquisition	Holding period starts
Bonus shares	None	Nil for the new shares	Allotment date of the bonus shares
Stock split	None	Old total cost spread over more shares	Original purchase date
Rights issue	None for subscribing	Price you pay for the new shares	Allotment date of the rights shares
Buyback	Tax on the gain from 1 April 2026	Your purchase cost	Original purchase date
Dividend	Taxed at your slab rate	Not applicable	Not applicable

Rules change often, so confirm the current position on the Income Tax Department website or with a chartered accountant before you act.

Capital Gains Rates for Listed Shares

Every sale of listed shares with securities transaction tax paid falls under the same two rates. Therefore, the holding period decides the rate, not the type of share.

Holding period	Type of gain	Rate	Notes
12 months or less	Short-term	20%	Plus surcharge and 4% cess where they apply
More than 12 months	Long-term	12.5%	Only gains above Rs 1.25 lakh in a year; no indexation

Furthermore, the Rs 1.25 lakh exemption covers all your long-term equity gains in the year, not each sale. Consequently, a small bonus-share sale may pay no tax at all if your other gains stay low.

How Bonus Shares Are Taxed When You Receive Them

The company issues bonus shares from its reserves, so you pay nothing and you receive no cash. As a result, the allotment creates no income for you. Check the live ratios and dates on our upcoming bonus shares page.

Therefore, the first tax event comes only when you sell. Until then, the extra shares sit in your demat account with no tax attached.

Cost and Holding Period of Bonus Shares

The law treats the cost of bonus shares as nil. Consequently, the full sale price becomes your gain. In contrast, your original shares keep their original cost.

The holding period for the new shares starts on the allotment date, not on the date you bought the original shares. Additionally, the original shares keep their own holding period. Therefore, you hold two lots with two clocks.

Lot	Quantity	Cost per share	Holding clock
Original shares	100	Rs 500 (made up)	From your purchase date
Bonus shares (1:1)	100	Nil	From the bonus allotment date

Selling the original lot first, or the bonus lot first, changes your tax. Consequently, plan which lot you sell before you place the order. Your broker’s tax report should show the lots separately.

Worked Example: Selling Bonus Shares

Assume you hold 100 shares bought at Rs 500 each, a total cost of Rs 50,000. A 1:1 bonus gives you 100 more shares. You then sell the 100 bonus shares at Rs 300 each, for Rs 30,000.

Step	Sold within 12 months of allotment	Sold after 12 months of allotment
Sale value	Rs 30,000	Rs 30,000
Cost of acquisition	Nil	Nil
Capital gain	Rs 30,000	Rs 30,000
Rate	20%	12.5% above Rs 1.25 lakh
Tax	Rs 6,000 plus cess	Nil if inside the exemption

The example shows why timing matters. However, it also shows that a low price does not remove the gain, since the cost is nil.

How a Stock Split Is Taxed

A split changes the face value and the share count, but it creates no income. Therefore, you pay no tax when the split happens. Your total cost stays the same, and your cost per share falls in proportion.

Item	Before a 1:5 split	After a 1:5 split
Shares held	100	500
Total cost (made up)	Rs 1,00,000	Rs 1,00,000
Cost per share	Rs 1,000	Rs 200
Holding period	From purchase date	Unchanged

For example, you sell 100 split shares at Rs 260 after 18 months. Your gain is Rs 6,000, because Rs 260 minus Rs 200 equals Rs 60 per share. The gain is long-term, and it falls inside the Rs 1.25 lakh exemption. Use the stock split calculator to adjust your own cost.

How a Rights Issue Is Taxed

A rights issue lets existing holders buy new shares at a set price. When you subscribe, you make a new purchase. Consequently, the price you pay becomes the cost of the new shares, and the holding period starts on their allotment date.

Step	Tax effect
You subscribe to the rights shares	No tax; the price you pay is the cost
The company allots the shares	The holding period starts
You sell the rights entitlement instead	A capital gain arises; take advice on the treatment
You let the entitlement lapse	No gain, but you lose the value

Use the rights issue calculator to see the theoretical ex-rights price and the value of an entitlement. Confirm each offer in the notice on NSE.

How a Buyback Is Taxed

A buyback is the one action where the rules changed recently. From 1 October 2024 to 31 March 2026, the whole buyback amount counted as a deemed dividend in the shareholder’s hands. In contrast, from 1 April 2026, reports say the proceeds are taxed as capital gains again.

Period	Treatment for the shareholder
Until 30 September 2024	Company paid the tax; shareholders were exempt
1 October 2024 to 31 March 2026	Whole amount taxed as a deemed dividend at slab rate
From 1 April 2026	Taxed as capital gains: proceeds minus your cost

Additionally, commentary on the rules for promoters varies between sources. Therefore, promoters should rely on a tax adviser and the notified text, not on summaries. Read the Infosys buyback record date guide for how a record date works in practice.

How Dividends Are Taxed

Dividends are different from the actions above, because you receive cash. The amount adds to your income and is taxed at your slab rate. Moreover, a company deducts tax at source when your dividends from it exceed the annual threshold.

For rates, thresholds and the TDS rule, read the full dividend tax guide. Consequently, do not mix up a dividend with a bonus. One pays you cash and a tax bill now, and the other pays you shares and a tax bill later.

How a Demerger Affects Your Cost

In a demerger, you receive shares of a new company. Generally, your original cost splits between the old and new shares in the ratio of their net book values. Additionally, the holding period of the new shares includes the period you held the original shares.

Therefore, keep the company’s demerger notice, because it states the cost split ratio. Without it, your broker may show the wrong cost.

Records to Keep for Every Corporate Action

1. The record date and the allotment date from the exchange notice.
2. Your share count and total cost before the action.
3. Your share count and cost per share after the action.
4. The sale date, price and charges for each lot.
5. The company’s notice for any demerger or buyback.

Furthermore, download your broker’s capital gains report each year and compare it with your own notes. As a result, you catch lot errors before you file.

Common Mistakes With Corporate Action Tax

• Treating the bonus allotment as taxable income.
• Using the original purchase date for the bonus shares.
• Forgetting that bonus shares carry a nil cost.
• Mixing up the old buyback rule with the new one.
• Ignoring the Rs 1.25 lakh exemption when you plan sales.

Finally, remember that this guide is general. Your slab, your residency and your holding record all change the result.

Frequently Asked Questions

Is tax on bonus shares charged when I receive them?

No. Receiving bonus shares is not a taxable event. Tax arises when you sell them.

What is the cost of acquisition of bonus shares?

It is nil. Therefore, the full sale price counts as a capital gain.

When does the holding period of bonus shares start?

It starts on the allotment date of the bonus shares, not on the purchase date of the original shares.

Is a stock split taxable?

No. A split only divides your total cost across more shares and keeps your original purchase date.

How is a rights issue taxed?

Subscribing is a new purchase. The price you pay is the cost, and the holding period starts on allotment.

How is a buyback taxed in 2026?

Commentary on the Finance Act 2026 says shareholders pay capital gains tax on buyback proceeds from 1 April 2026. Verify the enacted text.

What are the capital gains rates on listed shares?

Short-term gains pay 20% and long-term gains pay 12.5% above Rs 1.25 lakh a year, plus surcharge and cess where they apply.

Final Thoughts

Tax on bonus shares is simple once you remember two rules: no tax on receipt, and a nil cost on sale. Keep a separate record for each lot, check the rates before you sell, and confirm the details with a qualified adviser. Visit the Investor Weekly News for more explainers. This article is educational and is not tax or investment advice.