Impact of Bonus Issue on Holdings:

Q: What is a bonus issue, and how does it affect my holdings?

A: A bonus issue is when a company distributes free shares to eligible shareholders. The share price falls in the ratio of the bonus allotment, but worry not – it doesn't impact the overall value of your holdings. We display the bonus quantity only after they are credited.

Q: Can you give me an example of how a bonus issue works?

A: Certainly! Let's say Mr. X holds 10 shares of Reliance at ₹100 each, and the company announces a 2:1 bonus issue. After the bonus issue, Mr. X will receive 2 bonus shares for every share held, resulting in a total of 30 shares (10 originally bought + 20 bonus shares). Although the share price drops to ₹33.33, the value of Mr. X's holdings remains ₹1,000.

Partial Bonus Shares:

Q: What happens if a company announces a 1:2 bonus?

A: If an investor holds just 1 share, he is eligible to get 0.5 shares as a bonus. These partial bonus shares are settled in cash, and the funds will be credited to the investor's primary bank account.

Impact on P&L:

Q: How does a bonus issue affect my Profit & Loss (P&L)?

A: Your P&L will show an artificial drop until the bonus shares are credited to your demat account. Once credited (which takes up to 15 days), your P&L will be updated. You'll receive an SMS from CDSL when the shares are credited.

Impact on Taxation:

Q: What is the acquisition price for bonus shares as per IT Act.

A: As per Income Tax act acquisition price for all Bonus shares is zero. Let's say You hold 100 Sh of X company @ 50/- each and the company announces 1:1 shares bonus.  After the allotment of bonus shares your holding goes up to 200 sh instead of 100 shares. 

Now assume you sell 150 shares @ 30/- out of your post bonus holding then the cost of 1st 100 shares will be the original cost of buying i.e., 50/- and the cost of balance 50 shares will be Zero. Accordingly the capital gains would be - Loss of Rs. 2000/- (Rs. 50/- less Rs. 30/- X 100 sh) for the 1st 100 shares and for the balance 50 shares it will be gain of Rs. 2500/- (Rs. 50/- Less Zero X 50 sh)  Here if the original shares are held for more than a year and bonus shares held for less than a year then it would be Long term Capital loss  for the 1st 100 shares and Short term capital gain for the balance 50 shares as the date of allotment for the bonus shares is taken as the purchase date.