Bonus shares are additional shares that a company allots to eligible existing shareholders without asking them to pay for those shares. The allotment follows a specified ratio. A 1:1 bonus issue, for example, gives you one additional share for every share you already hold.
More shares do not automatically mean a more valuable investment. The share price adjusts to reflect the increased number of shares, while your proportional ownership generally remains unchanged.
Table of Contents
What is a bonus issue?
A bonus issue is a corporate action that converts part of a company’s eligible reserves into share capital. The company does not receive fresh money, and the transfer does not itself increase its total shareholders’ funds.
The process involves a board recommendation, required approvals, identification of eligible shareholders and allotment. A proposal announced after a board meeting is therefore different from a completed issue.
Bonus shares are usually additional equity shares. If you are new to share ownership, our guide explains what stocks are.
Sources: SEBI: FAQs on Issue of Capital and Disclosure Requirements; Companies Act, 2013: Section 63.
Key Takeaways
- Bonus shares are allotted without additional payment in proportion to an eligible shareholder’s existing holding.
- A bonus issue converts permitted reserves into share capital without raising fresh money.
- Eligibility depends on the record date and the exchange-announced ex-bonus date.
- The additional shares do not, by themselves, increase your investment’s value.
- Ordinary listed-company bonus shares are generally not taxed on receipt, but selling them can trigger capital gains tax.
How do bonus shares work?
The company announces a ratio that determines how many additional shares each eligible shareholder receives.
For a ratio expressed as A:
Bonus shares = Eligible shares held × A ÷ B
Total shares after the issue = Existing shares + Bonus shares
How to calculate bonus shares
Here’s how different bonus ratios affect your holding, assuming you own 100 eligible shares:
| Bonus ratio | Meaning | Bonus shares on 100 existing shares | Total shares after allotment |
| 01:01 | One new share for each existing share | ₹ 100 | 200 |
| 02:01 | Two new shares for each existing share | ₹ 200 | 300 |
| 01:02 | One new share for every two existing shares | ₹ 50 | 150 |
| 01:05 | One new share for every five existing shares | ₹ 20 | 120 |
Read the ratio carefully: a 1:2 issue gives a different entitlement from a 2:1 issue. Once eligibility is established and allotment is completed, the bonus shares are credited through the company’s corporate-action process. Eligible demat shareholders generally do not need to apply separately.
Are bonus shares fully paid-up?
Section 63 of the Companies Act, 2013 provides for fully paid-up bonus shares. Shareholders do not have an outstanding subscription amount to pay on those allotted shares.
Some descriptions of the “types of bonus shares” also discuss using reserves to make partly paid shares fully paid. That is different from receiving additional shares. Section 63 requires any partly paid shares outstanding at the time of bonus allotment to be made fully paid-up.
Source: Companies Act, 2013: Section 63.
What are the features of bonus shares?
The features below explain how bonus shares are allotted and what changes for shareholders and the company:
- Proportionate allotment: The announced ratio determines each eligible shareholder’s entitlement.
- No subscription payment: Shareholders do not pay to receive the bonus allotment.
- Capitalisation of reserves: Eligible reserves decrease and paid-up share capital increases.
- Unchanged face value: A standard bonus issue adds shares without reducing their face value.
- Generally unchanged ownership percentage: The shareholder’s holding and the company’s outstanding shares increase proportionately.
- Rights determined by the issue terms: The announcement specifies how the bonus shares rank alongside existing shares.
Sources: SEBI: FAQs on Issue of Capital and Disclosure Requirements; Companies Act, 2013: Section 63.
Why do companies issue bonus shares?
Companies may issue bonus shares to capitalise accumulated reserves and increase the number of shares in circulation. The resulting lower price per share reduces the amount needed to buy one share and may encourage participation.
However, the issue does not generate operating cash, improve profitability or guarantee higher trading volumes.
Permitted sources include free reserves, the securities premium account and the capital redemption reserve account. Reserves created by revaluing assets cannot be used for a bonus issue.
Bonus shares should not be described as a substitute for cash dividends. The Companies Act states that they shall not be issued in lieu of dividend.
Source: Companies Act, 2013: Section 63.
Who is eligible to receive bonus shares?
Shareholders identified as eligible on the company’s record date receive the entitlement. For a normal exchange purchase, buy before the announced ex-bonus date, allowing the transaction to settle in time.
A purchase on or after the ex-bonus date does not carry entitlement to that issue. Under the normal T+1 settlement cycle, the ex-date and record date commonly coincide, but you should follow the dates in the exchange notice.
What are the key dates for a bonus issue?
Track these dates to understand your eligibility, when bonus shares are allotted and when you can trade them:
| Date | What it means |
| Announcement date | The company discloses the proposal and its terms, subject to required approvals |
| Ex-bonus date | The first trading day on which purchases do not carry the bonus entitlement |
| Record date | The date used to identify eligible shareholders |
| Allotment date | The date on which the additional shares are allotted |
| Trading commencement date | The date from which the allotted shares can trade |
Check subsequent notices for approvals or revised dates rather than relying solely on the initial announcement.
Source: NSE: Corporate actions.
When can you trade bonus shares?
SEBI’s framework provides for deemed allotment on the next working day after the record date, or T+1, and trading on the following working day, or T+2.
Here, T is the record date, not your purchase date. The framework applies to bonus issues announced on or after 1 October 2024 and is included in SEBI’s February 2026 ICDR Master Circular. Check the exchange notice for the actual trading commencement date.
Sources: SEBI: T+2 trading of bonus shares; SEBI: February 2026 ICDR Master Circular.
How do bonus shares affect stock prices?
The theoretical price adjusts downwards because the company is represented by more shares.
For an A bonus ratio:
Theoretical ex-bonus price = Pre-bonus price × B ÷ (A + B)
Suppose you hold 100 shares priced at Rs. 600 each before a 1:1 bonus issue.
| Particulars | Before the issue | After the issue |
| Shares held | 100 | 200 |
| Price per share | ₹600 | ₹300, theoretically |
| Holding value | ₹60,000 | ₹60,000, theoretically |
Your share count doubles, while the theoretical price halves. Actual trading prices can differ because of demand, supply, company news and market movements.
The company’s total earnings do not increase because of the allotment. Earnings per share therefore adjust to the larger share count, all else being equal.
The figures shown are for illustrative purpose only
What are the advantages and limitations of bonus shares?
The practical effects depend on the stock and the shareholder’s needs:
- Smaller transaction amounts: A lower price per share can make it easier to buy or sell a smaller rupee amount.
- Trading liquidity: More shares in circulation may support trading activity, but an improvement is not assured.
- No cash income: The allotment does not provide cash to meet expenses.
- Uncertain future dividends: More shares do not guarantee higher dividend income because future declarations can change.
- Continuing investment risk: Business, valuation and market risks remain after the issue.
- No proof of financial strength: A bonus announcement alone does not establish profitability, sound cash flow or attractive valuation.
How does a bonus issue differ from a stock split?
Both actions increase the number of shares and lead to a price adjustment. Their accounting treatment differs
| Basis | Bonus issue | Stock split |
| Method | Additional shares are allotted | Existing shares are subdivided |
| Face value | Normally unchanged | Reduced proportionately |
| Paid-up share capital | Increases through capitalisation of eligible reserves | Remains unchanged through the split itself |
| Reserves | Relevant reserves decrease | No capitalisation of reserves is required |
| Proportional ownership | Generally unchanged | Unchanged |
| Immediate wealth creation | None from the action alone | None from the action alone |
A rights issue is different again. It offers eligible shareholders the opportunity to subscribe for additional shares, generally against payment, rather than allotting shares without payment.
How are bonus shares taxed in India?
For ordinary bonus equity shares issued proportionately by a listed company, receipt generally does not trigger tax. A subsequent sale can create capital gains.
For bonus shares allotted in 2026:
- Their acquisition cost is generally nil for capital gains calculations.
- Their holding period starts from the allotment date.
- Original shares retain their own acquisition dates and costs.
- Demat sales generally follow First-In-First-Out (FIFO) identification.
A broker’s displayed average price is not necessarily the statutory tax cost.
Sources: Income Tax Department: Capital gains; CBDT: Circular 18 of 2022.
What tax rates apply when listed bonus shares are sold?
For listed equity shares held as investments and sold in transactions meeting the applicable Securities Transaction Tax conditions:
Applicable surcharge and cess are additional. The long-term threshold applies across eligible gains, rather than separately to each company or bonus issue.
Source: Income Tax Department: Tax on sale of shares.
The tax information in this article is based on prevailing laws at the time of publishing the article and is subject to change. Please consult a tax professional or refer to the latest regulations for up-to-date information.
What are some examples of bonus shares issued in 2026?
The following selected entries from the bonus shares list for 2026 are supported by exchange records.
| Company | Bonus ratio | Ex-bonus date | Record date |
| Life Insurance Corporation of India | 01:01 | 29-May-26 | 29-May-26 |
| Trent Limited | 01:02 | 04-Jun-26 | 04-Jun-26 |
These dates have passed. This is a historical selection, rather than a complete list of bonus shares in 2026 or an upcoming entitlement calendar.
Sources: NSE: LIC corporate actions; NSE: Trent corporate actions; Trent: Bonus allotment filing.
Please note that the reference to any industry/sector/stock is provided for illustrative purposes only. This should not be construed as a research report or a recommendation to buy or sell any security or sector.
How can you find upcoming bonus shares in 2026?
Use the corporate actions section of the National Stock Exchange or BSE to search for bonus issues. Check the company name, ratio, ex-date, record date and latest announcement. Distinguish a proposal from an approved issue with confirmed dates, and review revised notices before transacting.
Source: NSE: Corporate actions search.
What should you check before investing around a bonus issue?
Assess the investment beyond the announcement:
- Business performance: Review revenue, profitability, cash flow and debt.
- Valuation: Examine the price relative to earnings, assets and business prospects, rather than the lower post-bonus price alone.
- Governance: Read financial disclosures, auditor observations and material announcements.
- Liquidity: Check whether trading activity supports your intended transaction.
- Eligibility: Confirm the exchange-announced ex-date and record date.
- Portfolio fit: Consider your existing exposure, investment horizon and ability to withstand losses.
Buying immediately before the ex-date does not create an assured gain because the price adjusts for the entitlement.
Conclusion
A bonus issue changes the number of shares you hold without itself creating investment gains. Understand the ratio, confirm eligibility and account for the price adjustment. Your investment decision should still rest on the company’s business, valuation and suitability for your portfolio.
FAQs
Do all companies issue bonus shares?
No. A company must meet the applicable requirements and obtain the necessary approvals. Shareholders have no automatic right to a periodic bonus issue.
Do I need to apply or pay to receive bonus shares?
Eligible demat shareholders generally do not need to apply or pay a subscription amount. The shares are credited through the company’s allotment process.
Can I buy shares on the ex-bonus date and receive the bonus?
No. A purchase on the ex-bonus date does not carry entitlement to that bonus issue.
Can I sell my existing shares on the ex-bonus date and still receive bonus shares?
For a normal settled holding, selling on the ex-bonus date generally does not remove the entitlement already attached to those shares. The buyer purchases without that entitlement.
What happens if my bonus entitlement includes a fraction?
Follow the company’s announced treatment of fractional entitlements. Do not assume that the fraction will be rounded up or credited as a whole share.
What should I do if my bonus shares have not been credited?
Check your eligibility, the company’s allotment notice and your depository statement. If the entitlement is missing after the announced process, contact the company’s registrar and transfer agent; your broker or depository participant can help check the account credit.
Can I sell bonus shares immediately after they appear in my account?
You can sell them once they are admitted to trading, subject to applicable restrictions. Account visibility alone does not confirm that trading has commenced.
Does a bonus issue guarantee a higher dividend?
No. Future dividend income depends on the dividend declared and the number of eligible shares held. The company can change the dividend per share.
Are bonus shares taxable when received?
Ordinary listed-company bonus shares issued proportionately are generally not taxed on receipt. Capital gains tax can apply when they are sold.
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