As a new-age investor, you must be aware of the fundamentals of the stock market before starting your investment journey. Along with having a grasp of the market dynamics, you must know about the key concepts of stock markets. One such crucial aspect is knowing about corporate actions, which are decisions taken by the companies listed on the stock exchange. These can be issuing dividend rights, split stocks and bonus shares.
A bonus share is a free additional share which is given to the shareholders as a bonus. Before you start trading in stock markets, you are compulsorily required to open a Demat Account and a Trading Account. Always remember that opening a Demat Account with a trusted and reliable stock broker will provide you with manifold benefits, and help in making wise investment decisions.
Bonus shares issue is also known as:
These are additional shares given to shareholders without any charges. For instance, if a company notifies 1:2 bonus issue, it means that the shareholders will receive two additional shares for one existing share. So, a shareholder having 100 existing shares will now have additional 200 shares, taking the total number of shares to 300.
As an investor, you must understand the tax implications on a bonus issue. According to the relevant provisions of the Income Tax Act, 1961, there are no tax implications on a bonus issue for shareholders in the particular financial year. This means that you don’t have to pay taxes for receiving the bonus shares. However, the gains, if any, made for trading in the additional shares are categorised as capital gains, and taxed accordingly.
Thus a company can issue bonus shares to its shareholders to share its accumulated earnings. Not only does bonus issue strengthen a company’s equity base, but also increases retail participation in its shares. As an investor you stand to gain if the company announces a bonus issue. Before starting to invest in company shares, you must mandatorily have a Demat Account. Opening a Demat Account with a trusted financial partner can provide access to a slew of benefits, like free AMC charges, seamless trading platforms and consolidated market research reports.