Bonus Shares Explained: Meaning, Record Date, Ex-Date and Tax in India
Bonus shares are free additional shares a company gives existing shareholders in a fixed ratio, paid for out of its reserves rather than with new money. In a 1:1 bonus, you get one new share for every share you hold on the record date, but the share price adjusts so your total holding value stays roughly the same. Tech Mahindra's board recommended a 1:1 bonus on October 15, 2026, according to the company's Q2 FY27 press release, which is why the topic is trending.
Many investors assume a bonus issue means a gain. It usually doesn't, at least not immediately. Here's how bonus shares actually work, and how they're taxed when you sell.
Key Takeaways
- A bonus issue increases the number of shares you hold, not the value of your holding.
- The share price adjusts on the ex-date in proportion to the bonus ratio.
- You must hold shares at the end of the record date to qualify; under T+1 settlement, buying on or before the trading day before the ex-date is what counts.
- For tax, the cost of bonus shares is treated as nil, so the full sale price can be a capital gain.
- The holding period for bonus shares starts from the date they are allotted, not from when you bought the original shares.
What Are Bonus Shares?
A company issues bonus shares by converting part of its accumulated reserves into share capital. No cash moves to or from shareholders. The company's total value does not change, but it is now divided among more shares.
Companies typically issue bonus shares to make each share more affordable, increase trading liquidity, or signal confidence in their reserves. Tech Mahindra's last 1:1 bonus was in March 2015, when it also split its shares, Business Standard reported at the time.
How Does a Bonus Issue Change the Share Price?
On the ex-bonus date, the share price adjusts so that the market value of the company stays about the same. The theoretical adjusted price is the old price multiplied by old shares, divided by new total shares.
| Bonus ratio | Shares before | Shares after | Theoretical price if old price is ₹1,000 |
|---|---|---|---|
| 1:1 | 100 | 200 | ₹500 |
| 1:2 | 100 | 150 | About ₹667 |
| 2:1 | 100 | 300 | About ₹333 |
| 1:4 | 100 | 125 | ₹800 |
GoPocket illustration. The ratio is read as "new shares : existing shares". Actual prices on the ex-date also reflect normal market movement.
Using Tech Mahindra's October 15, 2026 NSE close of ₹1,650, a 1:1 bonus would theoretically take the price to about ₹825, with a holder of 100 shares ending up with 200 shares worth roughly the same ₹1,65,000. Read our full Tech Mahindra Q2 FY27 results and bonus analysis.
What Is the Difference Between Record Date and Ex-Date?
The record date is the date the company checks its register to decide who gets the bonus. The ex-date is the first trading day on which a buyer no longer gets the bonus.
Under India's T+1 settlement cycle, shares bought on a trading day reach your demat account the next working day. That's why the ex-date and record date now usually fall on the same day. To be eligible, you need to buy the shares at least one trading day before the ex-date. If you buy on the ex-date, the bonus goes to the seller.
| You buy on… | Eligible for bonus? |
|---|---|
| The trading day before the ex/record date | Yes |
| The ex/record date or later | No |
Bonus shares are credited to eligible shareholders' demat accounts after the record date. For Tech Mahindra, the record date for the bonus has not yet been announced and the issue still needs shareholder approval.
How Are Bonus Shares Taxed in India?
Receiving bonus shares is not taxed. Tax arises only when you sell. Two rules matter most:
- Cost of acquisition is nil. For capital gains, the cost of bonus shares is treated as zero. Your original shares keep their original purchase cost.
- Holding period starts from allotment. Bonus shares are long-term only after being held for more than 12 months from their allotment date, regardless of when you bought the original shares.
For listed equity shares on which securities transaction tax is paid, short-term capital gains (held 12 months or less) are taxed at 20%, and long-term capital gains above ₹1.25 lakh in a financial year are taxed at 12.5%. These are the rates that have applied since July 23, 2024. Tax rules can change in a Budget, so check the current position before you sell. Our article on LTCG tax on shares covers the latest debate.
GoPocket Analysis: A Worked Tax Example
Suppose you bought 100 shares at ₹1,000 each (cost ₹1,00,000) more than a year ago. The company issues a 1:1 bonus, and you receive 100 bonus shares. The price adjusts to ₹500. Three months later, you sell all 200 shares at ₹520.
| Lot | Sale value | Cost | Gain / loss | Type |
|---|---|---|---|---|
| 100 original shares | ₹52,000 | ₹1,00,000 | −₹48,000 | Long-term capital loss |
| 100 bonus shares | ₹52,000 | Nil | +₹52,000 | Short-term capital gain |
Overall, you made just ₹4,000. But on paper, you have a ₹52,000 short-term gain and a ₹48,000 long-term loss. Under India's set-off rules, a long-term capital loss can be set off only against long-term gains, not short-term gains. So you could owe short-term tax on ₹52,000 even though your real profit is ₹4,000.
The practical lesson: timing matters. Selling bonus shares within 12 months of allotment can create a larger tax bill than investors expect. Anti-avoidance rules on "bonus stripping" can also apply when shares are bought shortly before a record date and the original shares sold soon after at a loss. Consult a tax professional for your specific case.
Bonus Issue vs Stock Split
| Feature | Bonus issue | Stock split |
|---|---|---|
| Funded from | Company reserves | No funding; face value is divided |
| Face value | Unchanged | Reduced |
| Number of shares | Increases | Increases |
| Cost basis for tax | New shares at nil cost | Original cost spread across all shares |
| Holding period | New shares from allotment date | From original purchase date |
What Should Investors Keep in Mind?
- A bonus doesn't change the company's value or your share of it.
- Check the record date announcement on the stock exchange, not social media.
- Track your bonus allotment date for tax purposes.
- Watch for price adjustments in charts; most platforms adjust historical prices for bonuses.
Track stocks with upcoming corporate actions, such as Tech Mahindra, on GoPocket. For IPO-related investing basics, visit the GoPocket IPO page.
Sources
- Tech Mahindra, Q2 FY27 results press release, October 15, 2026
- Business Standard, Tech Mahindra turns ex-bonus, ex-stock split, March 19, 2015
- Business Standard (PTI), HCL Tech, Tech Mahindra shares fall on turning ex-bonus, March 19, 2015
- NSE bhavcopy closing price for Tech Mahindra, October 15, 2026
Disclaimer: This article is for information and educational purposes only and is not tax, legal or investment advice. Tax rules may change; consult a qualified tax professional and a SEBI-registered investment adviser before acting.
