At the time of sale of shares, Capital Gains Tax is levied depending on the nature of the capital gains. If the Capital Gains are Long Term in Nature, tax on such gains would be levied @ 10% from Financial Year 2018-19 onwards and in case such gains are short term in nature, such gains would be taxable @ 15% under section 111A. Recommended Read:-
- Capital Gains Tax on the sale of Shares and Mutual Funds
- Capital Gains Tax on the sale of other Assets
Capital Gains Tax on Sale of Bonus Shares
Bonus Shares are shares which are allotted for free to the shareholders and the shareholders don’t have to pay anything for purchasing these shares.
Bonus Shares are usually issued in proportions. This can be explained with the help of the following example.
For eg: Mr X acquires 200 shares of a company on 1-5-2018 at Rs. 50 each. On 9-11-2019, the company allotted bonus shares in the ratio 1:1. This basically means that for every 1 share held, the company would be allotting 1 bonus share. Therefore in the above example as Mr X holds 200 shares, he would be allotted 200 shares as bonus. So, the total shares held by Mr. X on 9-11-2019 are 400.
Now on 3-07-2020, Mr X sells all his 400 shares at a price of Rs. 250. In such a case, the Capital Gains would be computed separately for the original shares and bonus shares as explained below:-
Capital Gains on sale of original 200 shares purchased @ 50 each
| Particulars | Amount |
| Selling Price (200*250) | 50000 |
| Cost of Acquisition (200*50) | 10000 |
| Expenses on Transfer (assumed Nil) | Nil |
| Capital Gains on sale of Original Shares | 40000 |
Capital Gains on sale of 200 Bonus Shares
No Tax would be levied at the time of allotment of such bonus shares. Tax would only be levied at the time of sale of such bonus shares and the computation for the same has been explained below
| Particulars | Amount |
| Selling Price (200*250) | 50000 |
| Cost of Acquisition (200*0) | 0 |
| Expenses on Transfer (assumed Nil) | Nil |
| Capital Gains on Sale of Bonus Shares | 50000 |
Period of Holding
The period of holding would be calculated separately for original shares and bonus shares.
In case of the 200 original shares which were purchased on 1-5-2018, the period of holding is more than 1 year and therefore these would be classified as Long Term Capital Gains. Tax on such Long Term Capital Gains arising from the sale of shares would be levied @ 10% from Financial Year 2018-19 onwards.
In case of the 200 bonus shares which were allotted on 9-11-2019, the date of allotment of such shares would be considered as the date of acquisition. Therefore the period of holding in the above mentioned case for bonus shares would be short term and therefore tax on these gains of Rs. 50,000 and tax would be levied @ 15% under Section 111A.
Capital Gains Tax on Sale of Right Shares
Right Share is a share in which the existing shareholders are given the option to acquire more shares in the company at a price lower than the current prevailing market price.
The Capital Gains Tax on the sale of Right Shares would be computed in the same manner as Capital Gains on the sale of Bonus Shares except for the fact that in case of Bonus Shares, the cost of acquisition for acquiring the bonus shares is Nil, whereas in case of Right Shares the cost of acquisition for acquiring the Right Shares would be the price paid for acquiring the right shares.
This can be explained with the help of an example. For example: Mr X purchases 200 shares @ Rs. 50 on 1-1-2019. On 1-5-2020, the company gives the existing shareholders an option to purchase more shares of the company @ Rs. 45 and Mr X purchases 100 shares @ Rs. 45. On 1-10-2020, Mr. X sells all his shares i.e. 300 shares for Rs. 65.
Capital Gains on sale of 200 Shares purchased on 1-1-2019 & sold on 1-10-2020
| Selling Price (200*65) | 13,000 |
| Cost of Acquisition (200*50) | 10,000 |
| Expenses on Transfer (assumed Nil) | Nil |
| Period of Holding (Purchased on 1-1-2019 and hold for more than 1 year) | Long Term |
| Capital Gains on sale of original 200 shares | Rs. 3,000 |
| Tax to be paid @ 10% | Rs. 300 |
Capital Gains on sale of 100 Right Shares purchased on 1-5-2020 & sold on 1-10-2020
In case of Stock splits, the date of acquisition of the divided shares is considered as the same as the date of acquisition of the original shares. Therefore the capital gains would be computed in the following manner:-
| Selling Price (100*65) | 6,500 |
| Cost of Acquisition (100*45) | 4,500 |
| Expenses on Transfer (assumed Nil) | Nil |
| Period of Holding (Purchased on 1-5-2020 and hold for less than 1 year) | Short Term |
| Capital Gains on sale of original 100 shares | Rs. 2000 |
| Tax Rate (Tax applicable on sale of Short Term Asset) | Income Tax Slab Rates |
Points to be noted:-
- In case the shares were purchased on different dates and only a proportion of the shares have been sold, the shares would be assumed to be sold on FIFO basis i.e. the shares which were purchased first would be assumed to be sold first and cost of acquisition of such shares would be taken for the purpose of computation of capital gains.
Capital Gains Tax on sale of Split Shares
Although to a layman, it may seem that the meaning of bonus shares and split shares is the same but technically speaking – both of these are 2 different things. Although their impact on the market price may be the same but stock split is different from bonus shares and therefore they are taxed differently.
The manner of computation of capital gains tax on sale of bonus shares has already been explained above and now we would be discussing about the capital gains tax on the sale of stock splits.
In case of sale of stock split – the date of acquisition of the split shares would be the same as the date of acquisition of the original shares. The cost of acquisition in the case of a stock split would be divided proportionately to the original and the split shares. The same has been explained below with the help of an example.
For ex: Mr. X purchases 500 shares of a company on 1-4-2020 for Rs. 50 each. On 1-8-2020 – the company announces that they have split their shares in the ratio of 1:1 i.e. for every 1 share you’ll get an 1 extra split share. Therefore, Mr. X now has a total of 1000 shares i.e. 500 original shares + 500 bonus shares.
On 1-7-2021, Mr. X sells all the 1000 shares @ Rs. 60 each. The Capital Gains Tax in such a case would be computed in the manner specified below.
Cost of Acquisition in such a case would be computed proportionately in the manner specified below.
Total Cost of acquisition = 500*50 = 25000
Total Shares owned after issue of split shares = 500 + 500 = 1000 shares
Cost of acquisition of original and split shares to be apportioned = 25000/1000 = Rs 25 per share
Tax on sale of original 500 shares
| Selling Price (500*60) | 30,000 |
| Cost of Acquisition (50*25) | 12,500 |
| Expenses on Transfer (assumed Nil) | Nil |
| Period of Holding (Purchased on 1-4-2020 and hold for more than 1 year) | Long Term |
| Capital Gains on sale of original 500 shares | Rs. 17500 |
| Tax @ 10% | Rs. 1,750 |
Capital Gains on sale of 500 Split Shares issued on 1-8-2020 & sold on 1-7-2021
The period of holding of the split shares would be considered as the same as the period of holding of the original shares and the cost of acquisition would be apportioned proportionately.
| Selling Price (500*60) | 30,000 |
| Cost of Acquisition – Proportioned apportionately (50*25) | 12,500 |
| Expenses on Transfer (assumed Nil) | Nil |
| Period of Holding (Considered to be purchased on 1-4-2020 and hold for more than 1 year) | Long Term |
| Capital Gains on sale of original 500 shares | Rs. 17500 |
| Tax @ 10% | 1,750 |
