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Investing

Bonus Shares: Record Date, Credit to Demat and Tax

Bonus shares are free shares for holders on the record date, deemed allotted the next day and tradeable a day later. Their cost for tax is nil.

AS

Written by Aarav Sharma

Published 19 October 2026·7 min read

On this page8 sections
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Bonus shares are extra shares a company issues free to shareholders who hold its shares on the record date, by converting its reserves into share capital. For bonus issues announced from 1 October 2024, the shares are deemed allotted the day after the record date and can be traded the day after that. For tax, bonus shares cost nothing, so their full sale price is a capital gain.

Key facts

Point Rule
Sources a company can use Free reserves, securities premium account or capital redemption reserve (Section 63, Companies Act, 2013)
Not allowed Bonus from revaluation reserves; bonus in lieu of dividend
Eligibility Holding on the record date (T); under T+1 settlement the ex-date is the same day
Deemed allotment T+1
Trading in bonus shares From T+2
Face value Unchanged
Cost for capital gains Nil
Holding period Counted from the date of allotment of the bonus shares

What a bonus issue is and how ratios work

A bonus issue moves money from the company’s reserves into its share capital and hands the new shares to existing holders in proportion to what they own. Under Section 63 of the Companies Act, 2013, a company may issue fully paid bonus shares only from:

  • its free reserves;
  • the securities premium account; or
  • the capital redemption reserve account.

Reserves created by revaluing assets cannot be used, and bonus shares cannot be issued in lieu of dividend. The issue needs authority in the articles and a resolution in a general meeting. The company must not be in default on fixed deposit or debt repayments or on statutory dues such as provident fund and gratuity. Once the board announces a bonus, it cannot withdraw it.

A bonus ratio tells you how many new shares you get for the shares you hold. In a 2:1 bonus, you get two additional shares for every one share. A 1:1 bonus doubles your holding.

Record date and ex-date under T+1

SEBI’s circular of 16 September 2024 set a fixed timeline, applicable to all bonus issues announced on or after 1 October 2024. Here, T is the record date.

Day What happens
Within 5 working days of the board meeting Company applies to the stock exchange for in-principle approval
T (record date) Holders on this date are eligible; exchange notifies the record date, share count and deemed allotment date
T+1, by 12 pm Company submits documents to the depositories for credit; this is the deemed date of allotment
T+2 Bonus shares are available for trading

Because equity trades settle on T+1, the ex-date and the record date are the same day. To get the bonus, buy the shares at least one trading day before the record date. If you buy on the record date itself, the shares reach your account too late.

Bonus shares are now credited straight into the existing ISIN. Before this circular, they were first credited to a temporary ISIN.

When bonus shares are credited and become tradeable

  1. Check the record date in the company’s announcement on NSE or BSE.
  2. Hold the shares in your demat account at the end of the record date.
  3. On the ex-date, the share price adjusts down in line with the ratio.
  4. Expect the bonus shares in your demat account within about two working days of the record date; your depository sends a credit message.
  5. From T+2, you can sell the bonus shares.
  6. If the shares have not appeared, ask your broker, who can check with the company’s registrar.

Until the credit arrives, your broker app can show a sharp fall in value, because the price has already adjusted. Zerodha notes that the timing can also depend on the registrar.

Effect on price and holdings

The company’s value does not change because of a bonus, so the price falls in proportion. Zerodha Varsity’s example: a stock at ₹75 with a 1:1 bonus trades at about ₹37.50 afterwards, while the share count doubles.

Item Before a 1:1 bonus After
Shares held 100 200
Price (theoretical) ₹600 ₹300
Value ₹60,000 ₹60,000
Your average cost (bought at ₹500) ₹500 ₹250

Brokers show a lower average price because the bonus shares enter your holdings at zero cost. For F&O positions, NSE adjusts all open contracts after the last cum-date: for a bonus of A:B, the factor is (A+B)/B. Strike and futures prices are divided by the factor, and lot sizes and positions are multiplied by it. A 1:1 bonus therefore halves strikes and doubles lot sizes. NSE keeps the stock’s tick size unchanged until its next monthly review.

A bonus issue differs from a split, where the face value itself is cut. Our guide to stock splits compares the two.

How bonus shares are taxed when sold

Receiving bonus shares is not taxed. Tax arises when you sell. Sales up to 31 March 2026 are covered by the Income-tax Act, 1961, and sales from 1 April 2026 by the Income-tax Act, 2025.

ItemDetails
Cost of acquisition is nil.The 2025 Act, in Section 90(6)(d), says a financial asset allotted without payment on the basis of another holding has a nil cost. Section 55(2)(aa) of the 1961 Act has the same rule.
Holding period starts on allotment.For bonus shares, the period runs from the date of allotment, not from when you bought the original shares (Section 2(101) of the 2025 Act; Section 2(42A) of the 1961 Act).
Rates for listed sharesheld 12 months or less, the gain is taxed at 20%; held longer, at 12.5% on gains above ₹1,25,000 a year (Sections 196 and 198 of the 2025 Act; Sections 111A and 112A of the 1961 Act).

Bonus stripping rule

Some investors buy shares just before a bonus and sell the originals at a loss after the price drops, while keeping the bonus shares. The law blocks that loss if all of these apply:

  1. You bought the shares within three months before the record date.
  2. You sell any of those original shares within nine months after the record date.
  3. You still hold some or all of the bonus shares.

The loss is then ignored and instead added to the cost of the bonus shares you still hold. Section 94(8) of the 1961 Act has applied this to securities, not just mutual fund units, since 1 April 2023; Section 175(9) and (10) of the 2025 Act carry it forward.

Example: you buy 100 shares at ₹500 two months before a 1:1 bonus. After the bonus you sell the 100 original shares at ₹300, a loss of ₹20,000, and keep the 100 bonus shares. The ₹20,000 loss is ignored, and the bonus shares now carry a cost of ₹20,000. Without the stripping rule, a sale of the bonus shares at ₹300 would give a gain of ₹30,000.

Use the capital gains calculator to work out your figures, and see taxation on stocks for how share income is reported. For large or unusual holdings, a chartered accountant can confirm the treatment.

Frequently asked questions

What is the record date for bonus shares?

It is the date the company uses to decide who gets the bonus. You must hold the shares at the end of that day, so buy at least one trading day earlier.

When will bonus shares be credited to my demat account?

For bonus issues announced from 1 October 2024, allotment is deemed on the day after the record date. The shares can be traded from the second working day after the record date.

Why did the share price fall after the bonus?

The price adjusts for the extra shares. Your total value stays about the same once the bonus shares are credited.

What is the cost of bonus shares for tax?

Nil. The whole sale price is a capital gain, and the holding period starts from the allotment date.

Are bonus shares taxable when received?

No. Tax applies only when you sell them.

Can a company cancel a bonus issue after announcing it?

No. Once the board announces a bonus decision, the company cannot withdraw it under the Companies (Share Capital and Debentures) Rules, 2014.

What does a 1:1 bonus mean?

You get one free share for every share you hold, so 100 shares become 200.

Sources

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