Latest Expert Exchange Queries

GST Demo Service software link: https://ims.go2customer.com
Username: demouser Password: demopass
Get your inventory and invoicing software GST Ready from Binarysoft info@binarysoft.com
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
 
 
 
 
Popular Search: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: Central Excise rule to resale the machines to a new company :: ACCOUNTING STANDARD :: TAX RATES - GOODS TAXABLE @ 4% :: cpt :: VAT RATES :: ARTICLES ON INPUT TAX CREDIT IN VAT :: TDS :: due date for vat payment :: form 3cd :: articles on VAT and GST in India :: VAT Audit :: empanelment :: ACCOUNTING STANDARDS :: list of goods taxed at 4%
 
 
« General »
 The differences between tax and cess
 Startups that raised funds from angel investors face tax scrutiny
 Tax collection assumptions in India's budget ambitious
 All scrutiny cases, sans search, to be e-assessed
 Key tax changes that will come into effect from April 1
 Eight lakh companies on Income Tax department radar for not filing tax returns
 4 things a taxpayer shouldn’t miss
 Impact on LTCG will be more than 10 per cent
 Here's how much the tax reliefs you want will cost the finance minister
 Companies (Appointment and Qualification of Directors) Amendment Rules, 2018
 How young earners can claim HRA tax exemption with ease

Selling bonus shares? Note the tax implications carefully
February, 09th 2015

Many companies are declaring bonus shares for their shareholders. While this is good news for them there is also a tax implication that can lead to a sudden change for the investor. If there is a sale of shares by individual the amount could get classified as a short term capital gains. This in turn would require paying tax. This tax outgo can be significant and hence the details related to the bonus shares should be considered to know the exact tax impact. Here is a closer look at the entire issue in detail.

Cost of bonus shares

Bonus shares are those shares which are given free of cost to the existing investor in a specific ratio. Thus the ratio can be something like 1:1 which means that the investor will receive 1 share as bonus for every existing share held. This will double the holding of the investor but it will lead to a price correction wherein the impact of this bonus issue would keep the total value of the holding at the same levels. The investor feels happy because they are getting a free share and while the price on the stock exchange corrects for this so called free impact. However there is a different impact on the tax front.
For the purpose of the tax calculations the cost of a bonus shares would be considered as zero. The implication of this is that any amount that is earned at the time of the sale of the shares would be considered as capital gains since there is no cost involved in the purchase.

Time period of holding

The key issue is the time period of holding of the bonus shares because this will determine their classification into a short term capital gain or a long term capital gain. If the share is held for a period of less than 12 months then it becomes a short term capital gain while if the holding period is 12 months or more then it is a long term capital gains. The question here is the date from which the time period for the holding would start because the original shares could have been held for a long time period while the bonus shares would have been issued at a later date. In this case the income tax act clearly states that the time period for the holding should be calculated from the issue of the bonus shares and not from the date of the purchase of the original shares.

Implications

There can be a higher tax implication on this front because it could be that there are investors who have bought the shares in a company a long time ago but due to the bonus issue they find themselves in a position wherein a part of their holding suddenly is due to the bonus shares. Now if there is a need to sell these shares in the next one year then they could have a tax impact that arises due to the short term capital gains nature of the benefits that they have earned. The rate on these gains is 15 per cent but it could end up being a higher total amount that would have to be paid to the tax department. Here they would have to segregate their holdings and sale into long term capital gains for the original holdings plus a short term gain for the bonus shares and then make the tax payments accordingly. This is one impact that they should pay careful attention to as one is liable to make mistakes on this front.

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Enterprise Resource Planning Solutions ERP Solutions Enterprise Resource Planning Software Solutions ERP Software Solutions Supply Chain Management Solutions SCM Solutions Supply Chain Management Software Solutions SCM Software Solutions Enterprise Resource Planning Solutions India ERP Solutions India Enterprise Resource Planning Software Solutions India ERP Software Solutions India Supply Chain Management Solutions India SCM Solutions India Supply Chain Management Software Solutions India SCM Software Solutions India

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions