What are Bonus Shares? Everything You Need to Know
- Share.Market
- 5 min read
- 10 Apr 2026
Highlights
- Understand how companies issue bonus shares from accumulated profits without any payment from shareholders
- Learn how SEBI’s September 2024 circular shortened the bonus share credit timeline to within two working days after the record date, improving liquidity for investors
- Discover how bonus issues impact share prices through proportional adjustment while keeping total investment value unchanged
- Compare bonus shares versus stock splits to grasp the key differences in face value and accounting treatment
Introduction
Bonus shares reward existing shareholders without diluting investment value. Understanding how they work, from eligibility rules to price adjustments, helps you make informed decisions when companies announce these corporate actions.
What are Bonus Shares?
Bonus shares are additional shares issued by companies to existing shareholders at no cost. According to SEBI, bonus shares are issued by capitalising free reserves or securities premium collected in cash.
Companies cannot issue bonus shares from revaluation reserves; only actual profits qualify. This ensures shareholders receive quality shares backed by real earnings.
Example: In a 1:2 bonus issue, you receive 1 bonus share for every 2 shares held. If you own 200 shares, you’ll get 100 additional shares free.
Once the Board of Directors approves a bonus issue, companies must implement it within 15 days if shareholder approval is not required, or within two months if it is required. Bonus issues cannot be withdrawn once announced, providing certainty to investors.
Record Date and Eligibility for Bonus Shares
The record date determines which shareholders qualify for bonus shares. Hold shares in your demat account on this date to receive the bonus allocation.
Under India’s current T+1 settlement cycle, the ex-date and record date fall on the same day. Investors must buy shares before the ex-date to be eligible. If you buy shares on the ex-date (which is also the record date), they are credited on T+1, making you ineligible for the bonus shares.
Timeline example:
- Announcement date: 10 Jan
- Ex-date / Record date: 21 Jan
SEBI’s September 2024 circular streamlined this process. Bonus shares are now credited within two working days after the record date and become tradable shortly thereafter, compared with the earlier timeline of up to 15 days. This improves liquidity significantly for investors.
How Bonus Shares Impact Stock Price
Bonus issues don’t create new value; they redistribute existing value across more shares. Share prices adjust proportionally, keeping total market capitalisation unchanged.
The NSE uses this adjustment formula: (A+B)/B, where A: B represents the bonus ratio.
Price adjustment calculation:
| Ratio | Formula | Factor | Before | After |
| 1:1 | (1+1)/1 | 2.0 | ₹500 | ₹250 |
| 1:2 | (1+2)/2 | 1.5 | ₹500 | ₹333 |
| 2:1 | (2+1)/1 | 3.0 | ₹500 | ₹167 |
Bonus Shares Vs. Stock Split: Key Differences
Both increase share quantity and reduce per-share price, but differ fundamentally in accounting and face value treatment.
Comparison table:
| Factor | Bonus Shares | Stock Split |
| Nature | New shares issued from reserves | Existing shares divided |
| Face value | Remains unchanged (₹10 stays ₹10) | Reduces proportionally (₹10 becomes ₹5) |
| Source | Accumulated profits/premium | No reserve usage |
| Impact | Capitalises reserves | Restructures capital only |
Example: You own 100 shares with a ₹10 face value at a ₹500 market price.
- 1:1 Bonus: You get 100 new shares (₹10 FV each), price adjusts to ~₹250
- 1:1 Split: Your 100 shares become 200 (₹5 FV each), price adjusts to ~₹250
Tax Treatment of Bonus Shares
You don’t pay tax when receiving bonus shares; they’re treated as a corporate action, not income.
Taxation applies only when you sell:
- Cost of acquisition: Zero for bonus shares
- Holding period: Starts from the bonus allotment date, not the original share purchase date
- Capital gains: Since the acquisition cost of bonus shares is treated as zero, the entire sale value (after brokerage) becomes taxable capital gain.
LTCG vs STCG classification:
- Hold bonus shares >12 months: Long-term capital gains apply
- Hold <12 months: Short-term capital gains apply
Selling immediately triggers tax on the full sale amount since the acquisition cost is zero. Consider holding period implications before trading.
Your Next Step in Bonus Share Clarity
Bonus shares increase your shareholding without requiring fresh investment, but they don’t magically boost wealth; total value stays constant through price adjustment. Understanding record dates, tax implications, and the difference from stock splits helps you react confidently when companies announce these actions.
Track announcements through NSE or BSE corporate action calendars. Hold eligible shares in a demat account before the ex-date, and plan your sale timing with tax efficiency in mind.
FAQs
Bonus shares are free additional shares issued by companies to existing shareholders from accumulated profits. You receive them proportionally to your current holdings without paying anything; total investment value remains unchanged as the share price adjusts downward.
The record date is the cutoff date determining eligible shareholders. You must buy shares before the ex-date (which is the same as the record date under India’s T+1 settlement cycle) to qualify. Buying on or after the ex-date makes you ineligible because shares are credited the next trading day.
Share price adjusts proportionally to maintain market capitalisation. In a 1:1 bonus, the price approximately halves. If you held 100 shares at ₹500, you’ll own 200 shares at ₹250, same ₹50,000 total value, more shares at a lower price.
Bonus shares issue new shares from reserves (face value unchanged); stock splits divide existing shares (face value reduces). Both increase quantity and reduce price, but accounting treatment differs. Face value stays ₹10 in bonus; becomes ₹5 in 1:1 split.
No tax when receiving bonus shares. Taxable only when sold, since the acquisition cost of bonus shares is treated as zero, the entire sale value (after brokerage) becomes taxable capital gain. Holding period for LTCG/STCG classification starts from the bonus allotment date, not the original purchase date. Consider tax impact before selling.
