Bonus Share: Meaning, Definition & Indian Stock Market Examples

Free additional shares issued to existing shareholders from company reserves.

Disclaimer: This article is for educational purposes only and does not constitute SEBI-registered investment advice. Consult a SEBI-registered investment advisor before making investment decisions.

What is Bonus Share?

A bonus issue (capitalisation issue) distributes free additional shares to existing shareholders in proportion to their holdings, using the company's accumulated reserves. A 1:1 bonus doubles your share count; price halves. Total investment value is unchanged immediately, but increased share count can boost liquidity and retail participation.

Bonus Share — Indian Stock Market Example

Bajaj Auto has issued multiple bonus shares over the decades, rewarding long-term shareholders. Wipro's frequent bonus issues and HDFC Bank's history of bonuses made early investors wealthier as the companies grew. A ₹100 share with 1:1 bonus becomes two shares at ₹50 each — same total value, but more shares.

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Frequently Asked Questions about Bonus Share

Does a bonus issue create real value?

No — a bonus issue is purely cosmetic immediately. Your total holding value stays the same (more shares at proportionally lower price). However, a lower share price post-bonus can improve market liquidity and retail participation, which sometimes results in a slight re-rating over time. Companies often announce bonuses as a signal of strong accumulated reserves and confidence in future earnings.

What is the tax treatment of bonus shares in India?

Bonus shares acquired after April 1, 2018: cost of acquisition = ₹0 (nil). If you sell bonus shares held > 12 months, LTCG = 10% on full sale price (minus ₹1 lakh exemption). If sold < 12 months: STCG = 15%. The holding period of bonus shares starts from the date of bonus allotment, not original purchase.

Related Terms

Stock Split

Dividing existing shares into multiple shares — reduces price per share, increases count.

Earnings Per Share

Net profit divided by total shares — profit attributable to each share.

Face Value

The nominal value of a share set at issuance — typically ₹1, ₹2, or ₹10.

Dividend

Cash distribution from company profits to shareholders.

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