Tax paying on Bonus share
Suppose that you bought shares of a company. First of November 2018 and assume that you bought shares only one. you bought the shares at 1000 rupees only one share.
On the 1st of January 2019 that the company declares a bonus. It is declared in the ratio of 1 is to 1 that the price from 1st of November to 1st of January is going to be different so assume that the price is 1200 rupees on 1st of January, now what happens with 1 is to 1 bonus, what happens in bonus share is that instead of one share now you will have 1 is to 1. So now we will have so impact will be now we'll have two shares of this same company but the important point is what will be its value before bonus we call it as come bonus, before the bonus is known as come bonus the price was 1200 rupees ex-bonus. Ex bonus means post bonus this price will go down to 600 of these. When one is to one bonus is given, one is to one is double the chef's that is half the price so price will be now 600 rupees per share.
How did it impact your investment?
Technically nothing because originally you had one share which was trading at a current market price of 1200 most bonus now will have two shares which are trading at 600 so the value remains intact at 1200 this is theoretical. What could happen practically is that this share price which was trading at 600 immediately people start buying more and more number of share because it is cheap more and more, people will start buying the ship because of greater demand the price moves up to 700 and now moves to 800 rupees in a matter of few months so now what happens is that assume currently it is trading at 800 rupees per share, so let me give you a further example, on 1st of December 2019 assume that it is trading at 800 rupees per share is it earlier and a 1st of December you take a call then let me sell off my shares, how many shares do you have how many shares to have 2 because 1 you had bought and 1 you have got free of cost, I am going to continue with the same example so this is your first share which you had purchased and this is the second share which was your free share because it's a bonus share.Tax pays on long term capital and short term capital
The taxation in point for this because we had bought this share on the 1st of November 2018, my cost price of the first share is thousand rupees. On the 1st of December what is the current market price is it, it's also known as the LTP. so the selling price LTP is 800 rupees what has happened in profit or are you in loss yes you're in a loss of 200 rupees.
This is known as a long-term capital loss why long-term capital loss because you had held this share for more than one year and then you have sold it. When I did we bought this we had bought it on first of November 2018 and we have sold it on 1st of December 2019 so it's more than a year that you've been holding this share so this is known as a long-term capital loss of 200 rupees. What happens in the next case second share what is the cost price the second share is zero rupees what is the selling price selling price is 800 rupees are so you are in a profit, here you are in a profit but wait profit is 800 rupees agreed question is when did you get this anyone when did you get this you got this share as a bonus share on 1st of January 2019 and when are you selling it off you are selling it off in December 2019 so is this a long term or is this a short term share this will be a short term so now what happens this is a short term capital gain that you have got and there's a tax for this you have to pay tax and the rate of 15% on this, so you'll have to pay 120 rupees tax on this fair enough now what happens you say I am Adam but this is 120 rupees tax we are wanting to pay there is one idea let's tell the government that government I have got 800 rupees profit and I've got 200 rupees loss so if I net it off I have only 600 rupees left with me so I'll pay tax on 600 rupees you will say anything but that's not allowed it has to be written in the tax laws.
Income tax laws very clearly mentioned that your long term capital loss cannot be set off against short-term capital gain. I have not read these rules so please don't say bad things about me the government of India. Which has made these rules is their discretion so as a thumb rule you have to remember this long-term capital loss cannot be set up against short-term capital gain right so what will happen with this with the 600 rupees are you allowed to pay tax on 600 rupees no, you will have to pay tax on entire 800 rupees and you will have to pay a tax of 120 rupees. I hope this short term capital gain thing is very clear with you. An example if you had a long term capital gain so if in the same thing if I presume that instead of first December 2019 if you would have sold on 1st December 2020 and you would have sold this at 1000 rupees round. So what happened to cause price remains the same selling price is now 1000 rupees so the profit same thousand rupees now you want to pay any tax on that. It becomes a tax-free thing. While selling the bonus shares is the date on which you got the bonus show, otherwise, unnecessarily you will have to buy out 15 percent of your game it's good-paying that you are paying tax but don't pay tax. If you can avoid it, there's a difference between vending and avoiding, the vending is illegal, avoiding is legal. So what a good way to avoid tax is to be sure you are selling it post one year so that, it becomes a long term capital gain. Reminder up to one lakh rupees your long-term capital gain taxes exempt. Anything over and above one lakh gets back stat the rate of 10%.
Thank you.
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