Bonus shares: the same pizza, more slices

Friend messaged this evening. A company he owns announced a 1:1 bonus, his 100 shares became 200 overnight, and he was pleased in the way you are pleased when something free turns up.

Asked him what the holding was worth before. Rs 80,000.

And now? He went to check. Still Rs 80,000.

The share count doubled. The reference price halved. Somewhere in between, the word bonus did all the work.

Here is what actually happens. A bonus is an accounting entry. Free reserves get relabelled as share capital. Not one rupee crosses the company gate and not one lands in your account. A split is barer still, the face value gets subdivided and the price adjusts to match. A dividend at least moves real cash from the company's balance sheet to your bank. A bonus moves a decimal.

The proof is sitting in the tax code, of all places. Sell all 200 shares at Rs 900. The law allows Rs 80,000 of cost on your original hundred and exactly nil on the bonus hundred, because you paid nothing for them. Taxable gain Rs 1,00,000, which is precisely the gain you would have had with no bonus at all. The law is not being harsh. It is agreeing with the arithmetic.

The one thing that genuinely changed is the clock. Bonus shares are new shares, so their holding period starts on the day they were allotted, not the day you bought the originals. Sell inside twelve months of that date and the nil cost half lands as a short term gain at 20 pct. On these numbers, Rs 18,000 owed on a gift that was never a gift.

What is real is small. A lower price per share is a smaller ticket. A board capitalising reserves is usually signalling confidence. Keep the rupee dividend per share steady on twice the count and that is a genuine raise. Plumbing and signals, never the gift.

A bonus does not bake a bigger pizza. It cuts the same one into more slices and counts on you feeling wealthier for holding more of them

The day the price halves

The holding in the opening was 100 shares at Rs 800. On the ex date of a 1:1 bonus, the exchange adjusts the reference price so the company's total value does not jump: the old price divided by two, Rs 400. The next morning, 200 shares at Rs 400 are worth Rs 80,000, exactly what 100 shares at Rs 800 were worth the evening before.

Inside the company the same thing happens on the balance sheet. Say it had Rs 10 crore of share capital and Rs 500 crore of reserves. A 1:1 bonus moves Rs 10 crore from reserves into share capital. Net worth stays Rs 510 crore. Every line that measures the business, sales, profit, cash, debt, is untouched. Only the per share figures halve: earnings per share, book value per share and the price.

The calendar from board meeting to your demat

Since T+1 settlement, the ex date and the record date are the same day, so anyone who owns the shares at the end of the day before qualifies. SEBI also tightened how fast the new shares must arrive.

1. Day 0Board approves the bonus

   The company informs NSE and BSE and fixes a record date, after shareholder approval where it is needed.

2. Record dateEx date, price adjusts

   The reference price is divided by 2 for a 1:1 bonus. Buy that day and you do not get the bonus.

3. Record date + 1Bonus shares credited

   The new shares reach the demat account one working day after the record date.

4. Record date + 2Bonus shares can trade

   From this day you can sell them, and their holding period has already started.

5. 12 months laterBonus shares turn long term

   Counted from the allotment date, not from when you bought the originals.

The tax, worked both ways

Now the clock from the opening, in rupees. You bought the original 100 shares more than a year ago. The bonus 100 were allotted three months ago. You sell all 200 at Rs 900, for Rs 1,80,000.

The original 100 are long term. Proceeds Rs 90,000 less cost Rs 80,000 is a gain of Rs 10,000, taxed at 12.5 percent only above the first Rs 1.25 lakh of equity long term gains in a year. If this is your only such gain, the tax is nil. The bonus 100 are short term, with a cost of nil. The whole Rs 90,000 is a short term gain at 20 percent: Rs 18,000.

Wait until the bonus shares cross 12 months and the same Rs 90,000 becomes a long term gain. Added to the Rs 10,000 from the originals, Rs 1,00,000 of long term gain sits inside the Rs 1.25 lakh exemption, and the tax is nil. The bonus changed nothing about how much you made. It changed when the taxman sees it as short term. The free Learn module on equity shares and corporate actions walks through bonus issues, splits, rights and buybacks side by side, and the capital gains tax calculator runs your own lots.

What actually moves money

The one real gain hides in the dividend. Say the company paid Rs 10 a share before the bonus, Rs 1,000 on 100 shares. If it keeps paying Rs 10 a share on 200 shares, you receive Rs 2,000. That is a doubling of the payout, a decision the board made separately from the bonus. If it pays Rs 5 a share instead, nothing changed. Read the dividend per share after the bonus, not the bonus itself. The posts on stock splits and buybacks take the other two corporate actions apart the same way.