Taxing bonus shares
The gift of shares in recognition of an employee’s performance or long service will generally be taxable in the employee’s hands as employment income. … There should, however, be no national insurance contributions on the gift. The income tax liability will be based on the value of the shares.
Bonus shares are issued according to each shareholder’s stake in the company. … For example, a three-for-two bonus issue entitles each shareholder three shares for every two they hold before the issue. A shareholder with 1,000 shares receives 1,500 bonus shares (1000 x 3 / 2 = 1500).
What is the formula for calculating capital gains tax?
In case of short-term capital gain, capital gain = final sale price – (the cost of acquisition + house improvement cost + transfer cost). In case of long-term capital gain, capital gain = final sale price – (transfer cost + indexed acquisition cost + indexed house improvement cost).
The investor can sell shares before the bonus date and pay LTCG tax and buy the shares from the market once the bonus issue is over. But if s/he holds on to the stock, s/he will need to pay a higher tax. Don’t rush to sell the shares of a company in your portfolio if it announces a bonus.
LTCG: IPOs, Bonus, Rights Issue, ESOPs Exempt From STT For Availing Concessional LTCG Tax.
Is a bonus capital gains?
While bonuses are subject to income taxes, they don’t simply get added to your income and taxed at your top marginal tax rate. Instead, your bonus counts as supplemental income and is subject to federal withholding at a 22% flat rate.
A maximum tax rate of 15% on investment earnings in super and 10% for capital gains.
Are bonus issues taxable?
The cash value of shares received as part of a bonus issue needs to be declared and taxed under the dividend taxation rules. … The GOV.UK website provides official guidance on tax on dividends. If shares received as part of a bonus issue are subsequently sold, Capital Gains Tax may be due.
When the bonus shares are issued, the number of shares the shareholder holds will increase, but an investment’s overall value will remain the same. … By issuing bonus shares, the number of outstanding shares increases, but each share’s value reduces, as shown in the example above. The face value remains unchanged.
Tax on such Long Term Capital Gains arising from the sale of shares would be levied @ 10% from Financial Year 2018-19 onwards. … 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.
Advantages Of Bonus Shares
It is beneficial for the long-term shareholders of the company who want to increase their investment. … Bonus shares increase the outstanding shares which in turn enhances the liquidity of the stock. The perception of the company’s size increases with the increase in the issued share capital.