Bonus Shares

Friend messaged this evening. A company he owns announced a 1:1 bonus, his 100 shares became 200 overnight, and he was pleased in the way you are pleased when something free turns up.

Asked him what the holding was worth before. Rs 80,000.

And now? He went to check. Still Rs 80,000.

The share count doubled. The reference price halved. Somewhere in between, the word bonus did all the work.

Here is what actually happens. A bonus is an accounting entry. Free reserves get relabelled as share capital. Not one rupee crosses the company gate and not one lands in your account. A split is barer still, the face value gets subdivided and the price adjusts to match. A dividend at least moves real cash from the company's balance sheet to your bank. A bonus moves a decimal.

The proof is sitting in the tax code, of all places. Sell all 200 shares at Rs 900. The law allows Rs 80,000 of cost on your original hundred and exactly nil on the bonus hundred, because you paid nothing for them. Taxable gain Rs 1,00,000, which is precisely the gain you would have had with no bonus at all. The law is not being harsh. It is agreeing with the arithmetic.

The one thing that genuinely changed is the clock. Bonus shares are new shares, so their holding period starts on the day they were allotted, not the day you bought the originals. Sell inside twelve months of that date and the nil cost half lands as a short term gain at 20 pct. On these numbers, Rs 18,000 owed on a gift that was never a gift.

What is real is small. A lower price per share is a smaller ticket. A board capitalising reserves is usually signalling confidence. Keep the rupee dividend per share steady on twice the count and that is a genuine raise. Plumbing and signals, never the gift.

A bonus does not bake a bigger pizza. It cuts the same one into more slices and counts on you feeling wealthier for holding more of them