Say I have 50 shares of XYZ company bought at 100 Rs. The company declared 1:1 bonus. By ex-bonus date the share price becomes 120. Post ex-bonus the share price changes to 60 and a person decides to sell 50 shares originally bought at 100. The person retains the 50 new shares alloted by the company. Assuming holding period less than 1 year.
How this kind of transaction is to be treated wrt profit / loss calculation for purposes of income tax.
On ex-date, you have 50 shares at Rs.60 with buy date as your initial buy date and you also have 50 new bonus shares at Rs.0 with buy date as ex-date.
So if you sell 50 shares after ex-date, the first 50 shares bought will be sold. And if the holding period for these 50 shares is less than 365 days, then any capital gains on this sell would attract tax.
Well in this particular case, buy price 100, selling price 60 for first 50 shares.
So no gains, but a loss of 40 per share, right?
Is it right to offset this loss against some other short term profit if there is some?
[quote=“ranbirs, post:3, topic:29207”]
So no gains, but a loss of 40 per share, right?
That’s correct. It will be a short-term capital loss of Rs.40 per share, and if this is filed, then it can be carried for 8 consecutive years and can be offset against any short-term capital gain of the equivalent amount in that duration.
Yeah, people do this. It’s called bonus stripping.
Many thanks for the clarification.