As a result of changes to company and taxation laws, the paid-up value of bonus shares is now generally not assessable as a dividend. … These shares are treated as dividends and the amount of the dividend is included in your assessable income.
Tax on such Long Term Capital Gains arising from the sale of shares would be levied @ 10% from Financial Year 2018-19 onwards. … Therefore the period of holding in the above mentioned case for bonus shares would be short term and therefore tax on these gains of Rs. 50,000 and tax would be levied @ 15% under Section 111A.
Benefits. So, if an investor can get the bonus shares, he/she will have more shares of a company for which the investor is not even paying any extra charge. … Without any cost, the existing shareholders will get the high price shares to increase their share base of the company while keeping the overall capital the same.
Because issuing bonus shares increases the issued share capital of the company, the company is perceived as being bigger than it really is, making it more attractive to investors. In addition, increasing the number of outstanding shares decreases the stock price, making the stock more affordable for retail investors.
Bonus shares are issued free of cost to existing Equity shareholders.
The investor can sell shares before the bonus date and pay LTCG tax and buy the shares from the market once the bonus issue is over. But if s/he holds on to the stock, s/he will need to pay a higher tax. Don’t rush to sell the shares of a company in your portfolio if it announces a bonus.
The disadvantages of issuing bonus shares are:
- To the company – as issue of this may lead to increase in capital of the company.
- Shareholder expect existing rate dividend per share to continue.
- It also prevents the new investors from becoming the shareholders of the company.
Is bonus stripping legal?
As a check on the activity of bonus stripping, provisions under Section 94(8) of the Income-tax Act, 1961 were introduced into the statute books. According to this section, if a person: acquires units within 3 months prior to the record date. … and the original units are sold within 9 months from the record date.
11.3 – Bonus Issue
A bonus issue is a stock dividend, allotted by the company to reward the shareholders. The bonus shares are issued out of the reserves of the company. … When the bonus shares are issued, the number of shares the shareholder holds will increase, but an investment’s overall value will remain the same.
1. Bonus issue is extra shares given to shareholders free of cost. Stock Split divides the existing outstanding shares of the company into multiple shares. … In a stock split in the 1:2 ratio, for every 1 share held, it will become 2 shares, for every 100 shares held, share count will become 200 shares.
No, a company cannot issue Bonus Shares to other than existing shareholders, It can only issue bonus shares to the members/shareholders whose names appear in Register of Members on the record date: Q. 4 Can a company issue partly paid up Bonus Shares? Ans.
Companies issue bonus shares to encourage retail participation and increase their equity base. When price per share of a company is high, it becomes difficult for new investors to buy shares of that particular company. Increase in the number of shares reduces the price per share.
Fully paid bonus shares are those shares that are distributed at no extra cost in the proportion of the investors holding in the company.
Is bonus issue good or bad?
Bonus issues don’t weaken shareholders’ value, since they are given to existing shareholders in a steady proportion that keeps the overall value of every shareholder equivalent to before the issue. It is helpful for the drawn-out shareholders of the company who need to expand their venture.