How to participate in a stock split on Zerodha
A stock split is a corporate action in which a company divides each existing share into multiple shares of a smaller face value, while keeping the total paid-up capital constant. For example, a 5:1 split on a Rs 10 face-value share produces five new shares of Rs 2 face value each for every existing share held. The aggregate value of a shareholder’s holding remains the same immediately before and after the split; only the number of shares and the face value change.
Companies use stock splits to improve liquidity by making shares more affordable to retail investors. No payment is required from shareholders. Participation on Zerodha is passive: if shares are held and settled in the demat account before the ex-date, the split shares are credited automatically.
Conflict-of-interest disclosure: WebNotes is an independent information publisher with no commercial arrangement with Zerodha or any broker.
Prerequisites
- An active demat account with Zerodha at CDSL.
- Shares of the split-issuing company purchased and settled in the Zerodha demat account before the ex-split date.
- No application or cash payment is required from the investor.
How a stock split works
Board approval and announcement
A company’s board passes a resolution approving the split ratio and the new face value. This resolution is disclosed to NSE and BSE immediately (within 24 hours under SEBI’s Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015). Shareholders’ approval is not required for a stock split (unlike a bonus issue that requires EGM approval in some cases), because it does not alter the capital structure in economic terms.
Key dates
| Date | What it means |
|---|---|
| Announcement date | Board resolution disclosed to exchanges. |
| Ex-split date | First date on which shares trade at the new (split-adjusted) face value and price. |
| Record date | Date on which the company’s register is checked to determine who receives the split shares. Typically the same as or one day after the ex-split date. |
| Credit date | Date on which additional (split) shares are credited to eligible demat accounts. |
Under T+1 settlement, the last day to buy shares and be eligible for the split is one trading day before the ex-split date.
Price adjustment
On the ex-split date, the exchange adjusts all open orders and the reference price to reflect the split. In a 5:1 split, the pre-split price of Rs 1,000 becomes a reference price of Rs 200. The circuit limit is applied around this adjusted reference price. Limit orders placed before the ex-date (at the pre-split price) are cancelled by the exchange before market opens on the ex-date.
Step-by-step: receiving split shares on Zerodha
Identify the ex-date: Check the NSE or BSE corporate action calendar, or the company’s stock exchange announcement. The split ratio (for example, 5:1 or 2:1) and the new face value are disclosed in the announcement.
Ensure shares are settled before ex-date: Under T+1 settlement, shares purchased one trading day before the ex-split date will be in your demat account by the ex-date. Shares purchased on or after the ex-split date will not be eligible for the split entitlement (the purchase price already reflects the split-adjusted price).
Do not place stale limit orders: Cancel all open limit or stop-loss orders on the share before the ex-date, because the exchange cancels pre-split orders and may create confusion. Place fresh orders at split-adjusted prices after the ex-date.
Wait for credit: The additional shares from the split are credited to the Zerodha demat account within 2 to 7 working days of the record date. During this period, Console holdings may show the pre-split quantity and value; after credit, the quantity increases and the average cost per share decreases proportionally.
Verify on Console: After credit, log in to Console > Holdings to confirm the new quantity. The average cost shown in Console will be the split-adjusted cost per share.
No charges: Zerodha does not charge any fee for crediting split shares.
What can go wrong
Split shares not credited within 7 working days: Raise a ticket with Zerodha support. The delay typically originates with the company’s RTA or CDSL’s corporate action processing. Zerodha will follow up on your behalf.
Stale orders not cancelled: If a limit sell order was placed before the split and not cancelled, it may execute at the pre-split price after the ex-date, resulting in an unintended sale at a fraction of the intended value. Always cancel open orders before a split ex-date.
Holdings showing incorrect quantity during processing window: During the 2-7 day processing period, the Console may display pre-split data. This does not indicate an error; it resolves once CDSL credits the new shares.
Pledged shares: Pledged shares are still eligible for the split. The new split shares may be credited to the pledged pool or to the free pool depending on CDSL’s processing; in either case, the total value of pledged shares remains the same.
Tax treatment of split shares
A stock split does not attract tax at the time of the split. Under the Income Tax Act, 1961:
- The original cost of acquisition is allocated proportionally across the new shares (unlike bonus shares, where the cost is zero).
- A 5:1 split of 100 shares purchased at Rs 1,000 each (total cost Rs 1,00,000) produces 500 shares at a cost of Rs 200 each (total cost Rs 1,00,000, unchanged).
Holding period
The holding period for split shares is counted from the original date of purchase of the pre-split shares, not from the split date. This is because no new asset is acquired; the existing shares are merely sub-divided. This means split shares held for more than 12 months from the original purchase date qualify as long-term capital assets.
Long-term vs short-term gains
- LTCG (held > 12 months from original purchase): 10% on gains above Rs 1 lakh under Section 112A.
- STCG (held ≤ 12 months from original purchase): 15% under Section 111A.
Grandfathering for pre-2018 purchases
For shares originally purchased before 31 January 2018, the grandfathering rule under Section 112A applies. The cost is deemed to be the higher of the actual cost or the fair market value (FMV) on 31 January 2018, subject to a cap at the actual sale price. The FMV used is the pre-split price on 31 January 2018, which must then be converted to the split-adjusted cost per share. See Grandfathering rule for LTCG for the computation methodology.
Stock split vs bonus issue
| Feature | Stock split | Bonus issue |
|---|---|---|
| Face value | Reduced proportionally | Unchanged |
| Cost of acquisition of new shares | Proportionally allocated from original cost | Zero (Income Tax Act) |
| Holding period for new shares | From original purchase date | From allotment date of bonus shares |
| Reserve capitalisation | No | Yes (free reserves used) |
| Shareholder approval | Usually not required | May be required |
Related guides
- How to participate in a bonus issue on Zerodha
- How to apply in a rights issue on Zerodha
- How to handle a fractional share entitlement
- Zerodha corporate action charges
- Capital gains tax in India
- Grandfathering rule for LTCG
References
- Companies Act, 2013, Section 61, subdivision of share capital.
- SEBI LODR Regulations, 2015, Regulation 42, record date and ex-date provisions.
- Income Tax Act, 1961, Section 2(42A), holding period for split shares.
- Income Tax Act, 1961, Section 55, cost of acquisition for split shares.
- NSE/BSE corporate action calendar, ex-date announcements for stock splits.
- SEBI Circular SEBI/HO/CFD/DIL1/CIR/P/2019/94, corporate action standardised timelines.
- Zerodha support documentation, split share credit and Console holdings.