How to participate in a bonus issue on Zerodha
A bonus issue is a corporate action in which a listed company distributes additional shares to existing shareholders free of cost, in proportion to their current holdings, by capitalising accumulated reserves. No payment is required from the shareholder. A 1:1 bonus means one additional share for every share held; a 2:1 bonus means two additional shares for every share held.
Unlike a rights issue, a bonus issue is automatic: shareholders who are on the register on the record date receive bonus shares without submitting any application or paying any consideration. Participation on Zerodha therefore requires no active step beyond holding shares before the ex-date.
Conflict-of-interest disclosure: WebNotes is an independent information publisher. It has no commercial arrangement with Zerodha or any other broker mentioned.
Prerequisites
- An active demat account with Zerodha (held at CDSL).
- Shares of the bonus-issuing company held in the Zerodha demat account on or before the ex-bonus date.
- No application, cash margin, or order submission is required.
How a bonus issue works
Board and shareholder approval
A company’s board first approves the bonus issue and sets the ratio (for example, 1:2, one bonus share for every two held). For a bonus issue that increases paid-up capital beyond the authorised capital, an extraordinary general meeting (EGM) or postal ballot approval is required. SEBI’s ICDR (Issue of Capital and Disclosure Requirements) Regulations govern the announcement and implementation timelines.
Ex-date and record date
| Date | Meaning |
|---|---|
| Announcement date | Board resolution approving bonus ratio is disclosed to the exchange. |
| Ex-bonus date | Shares bought on or after this date do not carry the right to the bonus. The share price adjusts downward on the ex-date to reflect the bonus. |
| Record date | The date on which the company checks its register of shareholders. Investors holding shares at end of day on the record date receive the bonus. |
Under T+1 settlement (effective since January 2023 on NSE and BSE), shares purchased one trading day before the ex-bonus date settle in the demat account on the ex-date itself. Therefore, to be eligible, the investor must purchase shares at least one trading day before the ex-bonus date.
Price adjustment on ex-date
When a 1:1 bonus is issued, the theoretical ex-bonus price is half the pre-bonus price. For a 2:1 bonus, the theoretical adjusted price is one-third the pre-bonus price. The market price adjusts automatically on the ex-date; the exchange’s circuit limit is applied relative to the adjusted reference price.
Step-by-step: receiving bonus shares on Zerodha
Because no active participation is required, the process is as follows:
Confirm ex-date eligibility: Check the ex-bonus date on NSE/BSE corporate action calendar or the company’s stock exchange filing. Verify that the shares are in your Zerodha demat account and settled before the ex-date.
Hold through record date: Do not sell shares between the ex-date and the record date. If you sell before or on the ex-date, you lose the bonus entitlement (shares sold on the ex-date will not carry bonus rights, as the ex-date price already excludes the bonus).
Wait for credit: Bonus shares are credited to the demat account within 2 to 15 working days after the record date, depending on the company’s share transfer formalities and CDSL processing. There is no fixed statutory deadline, but most companies credit bonus shares within a week of the record date.
Check holdings on Console: Log in to Console and navigate to Holdings to see the additional shares credited. The average cost per share in Console will be recalculated after the bonus credit.
No action needed if shares are not sold: The bonus shares are credited to the same demat account automatically. Zerodha does not charge any fee for receiving bonus shares.
What can go wrong
Bonus shares not credited on time: If bonus shares are not visible in Console within 15 working days of the record date, raise a support ticket with Zerodha at support.zerodha.com. Zerodha will follow up with CDSL and the company’s Registrar and Transfer Agent (RTA). The delay is usually on the company’s or RTA’s side, not the broker’s.
Sold shares between announcement and ex-date, then repurchased: If you sold shares after the announcement and repurchased them before the ex-date, the repurchased shares are eligible for the bonus. However, if the repurchase settled after the record date, you will not be eligible.
Pledged shares: If shares are pledged (for margin purposes), the pledged shares are still eligible for the bonus. Bonus shares credited against pledged shares may themselves be pledged automatically, depending on the pledge agreement and CDSL’s processing.
Pending delivery / auction shares: Shares that are under auction or pending delivery to the demat account on the record date may not receive the bonus. Shares must be fully settled in the demat account.
Tax treatment of bonus shares
Bonus shares are not taxable at the time of receipt. The cost of acquisition of bonus shares is deemed to be zero under the Income Tax Act, 1961 (Section 55(2)(aa), as amended by the Finance Act, 2017). The original shares’ cost remains unchanged.
Holding period
The holding period for bonus shares starts from the date the bonus shares are allotted (credited) to the demat account. This matters for determining short-term versus long-term capital gains:
- If bonus shares are sold within 12 months of allotment: Short-term capital gains (STCG) at 15% under Section 111A (equity shares sold on a recognised exchange with STT paid).
- If bonus shares are held for more than 12 months: Long-term capital gains (LTCG) at 10% on gains above Rs 1 lakh under Section 112A.
Since the cost of acquisition is zero, the entire sale proceeds of bonus shares (minus brokerage and STT) constitute the capital gain.
Example
A company issues a 1:1 bonus. An investor holds 100 shares purchased at Rs 200 each (total cost Rs 20,000). After the bonus:
- Holdings: 200 shares (100 original + 100 bonus).
- Cost of original shares: Rs 200 each (unchanged).
- Cost of bonus shares: Rs 0 each.
- If the investor sells 100 bonus shares at Rs 110 (post-bonus adjusted price): Gain = Rs 11,000 (entire proceeds, as cost = 0). If sold within 12 months of allotment: STCG = Rs 11,000.
Bonus issue vs stock split
Both bonus issues and stock splits increase the number of shares and reduce the per-share price proportionally. The key differences:
| Feature | Bonus issue | Stock split |
|---|---|---|
| Mechanism | New shares issued from reserves | Face value of existing shares reduced |
| Reserves | Capitalised (transferred from free reserves to paid-up capital) | Unchanged |
| Tax cost of new shares | Zero (Income Tax Act) | Allocated proportionally |
| Balance sheet impact | Paid-up capital increases | Face value per share reduces |
For the investor’s purposes, both produce the same economic effect: more shares at a proportionally lower price. The guide to stock splits is at how to participate in a stock split on Zerodha.
Related guides
- How to participate in a stock split on Zerodha
- How to apply in a rights issue on Zerodha
- How to receive and reinvest a dividend on Zerodha
- Zerodha corporate action charges
- Capital gains tax in India
- CDSL demat account
- Demat account overview
References
- SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, bonus issue provisions.
- Income Tax Act, 1961, Section 55(2)(aa), cost of acquisition of bonus shares deemed zero.
- Finance Act, 2017, amendment specifying nil cost for bonus shares.
- NSE/BSE corporate action calendar, ex-date and record date notifications.
- SEBI Circular SEBI/HO/CFD/DIL1/CIR/P/2019/94, standardised timeline for corporate action implementation.
- Zerodha support documentation, bonus share credit and Console holdings.