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Learn what bonus shares are, how they are issued on a specified ratio based on existing holdings, and how the share price and per-share metrics may adjust following a bonus issue.
Last updated on: Sep 25, 2026
Bonus shares are additional shares issued by a company to its existing shareholders at no extra cost. These shares are issued in a specific ratio to the number of shares already owned by the shareholders. The distribution is done from the company's accumulated earnings or reserves.
Bonus shares are additional shares issued by a company to its current shareholders without any extra charge. It is a way for a company to distribute accumulated profits or reserves to shareholders by capitalising a portion of those reserves into share capital, rather than paying it out as cash.
A bonus issue increases the total number of outstanding shares in proportion to existing holdings, but it does not change the overall market value of the company. Instead, the share price adjusts downward to reflect the higher number of shares, keeping the investor's total value unchanged.
For example, in a 1:1 bonus issue, a shareholder who owns 100 shares receives 100 additional shares, making their total 200. While the number of shares doubles, the price per share typically halves, ensuring the overall investment value remains the same.
Since a bonus issue distributes earnings over a greater number of shares, the dividend per share (DPS) and earnings per share (EPS) typically decline after the issue, even though total shareholder value remains unchanged at the time of issue.
Companies allocate bonus shares to existing shareholders in proportion to their holdings, which increases the number of shares in circulation. The type of bonus shares issued — fully paid or partly paid — depends on the company's financial structure and reserve position.
Companies generally issue bonus shares for the following reasons:
To capitalise eligible reserves.
To increase the number of shares outstanding.
To adjust the share price mechanically following an increase in the number of shares, subject to market movements.
To issue additional shares to existing shareholders without a cash payment by them.
Bonus shares are fully paid-up shares issued by a company to its existing shareholders by capitalising eligible reserves. Under Section 63 of the Companies Act, 2013, a company may issue bonus shares by capitalising its free reserves, securities premium account, or capital redemption reserve account, subject to applicable conditions.
Bonus shares and a stock split both increase the number of shares an investor holds without changing the total value of their holding, but they work differently. A bonus issue creates new shares by capitalising the company's reserves, which increases share capital and reduces reserves. A stock split simply divides existing shares into smaller units at a lower face value, without touching reserves or capitalisation. See What is Stock Split for a fuller explanation of how splits work.
These features apply to both the company and its shareholders.
Bonus shares are issued as fully paid-up shares to existing shareholders without requiring additional payment from them. They are issued by capitalising eligible reserves or other permitted accounts, subject to applicable legal and regulatory requirements.
Bonus shares are allotted to existing shareholders in a specified ratio, such as 1:1 or 1:2, based on the number of shares held on the relevant record date. The percentage ownership of a shareholder generally remains unchanged solely as a result of the bonus issue.
A bonus issue does not, by itself, increase the company's total shareholders' equity. An amount is transferred from eligible reserves to the share capital account, increasing share capital while reducing the corresponding reserves.
Following a bonus issue, the market price per share generally adjusts to reflect the increased number of shares, all else being equal. The actual market price may subsequently vary based on market conditions and other factors.
Shareholders do not make an additional payment to receive bonus shares. The receipt of bonus shares does not itself involve a cash payment to the shareholder. Tax treatment of bonus shares is governed by applicable tax laws.
A bonus issue increases the number of shares outstanding in the specified bonus ratio, while the company's share capital is adjusted accordingly.
Under Section 63 of the Companies Act, 2013, a company may issue fully paid-up bonus shares by capitalising its free reserves, securities premium account, or capital redemption reserve account, subject to the applicable conditions.
Bonus issues follow a structured process and are governed by regulations set by market regulators such as SEBI in India. Here is how it works:
The board of directors must first approve the proposal to issue bonus shares. After that, the company makes a public announcement, specifying the bonus ratio, record date, and ex-bonus date.
Record Date: The cut-off date by which shareholders must hold the company's shares to be eligible for bonus shares.
Ex-Bonus Date: The date from which a share trades without the entitlement to the upcoming bonus issue. The ex-bonus date is determined in accordance with the applicable stock-exchange and settlement framework and may differ from the record date.
Bonus shares are usually credited to the shareholder's demat account automatically, with no action required from the shareholder.
Under SEBI's framework introduced through its circular dated September 16, 2024, for bonus issues covered by the framework, T is the record date, the deemed date of allotment is T+1, and the bonus shares are made available for trading on T+2, subject to the prescribed process.
If a company declares a 1:2 bonus issue, for every 2 shares owned, 1 additional share is issued. So, if a shareholder owns 100 shares, they will receive 50 bonus shares.
Formula for Calculating Bonus Shares: For an a:b bonus issue, a shareholder receives (a ÷ b) × existing shares held.
Bonus shares affect both the company and its shareholders in the following ways:
Bonus shares are not immediately taxable when received. Tax is generally applicable only when these shares are sold, and capital gains are realised.
After a bonus issue, EPS and DPS recalibrate to the higher share count, which changes the denominator used in both metrics. The company's total earnings and total dividend payout are unaffected by this recalibration.
A bonus issue also carries the following consequences:
The company incurs costs for corporate-action processing, registrar and depository charges, and the associated regulatory filings.
Since the number of outstanding shares increases post-bonus issue, the earnings per share may decline unless the company's overall earnings grow proportionally.
A bonus issue increases the number of shares outstanding by capitalising eligible reserves. It does not, by itself, bring additional cash or other resources into the company. The corresponding amount is transferred from eligible reserves to share capital.
Eligibility for bonus shares depends on dates set by the company and the stock exchanges.
What it is: The cut-off date the company uses to determine the shareholders eligible to receive bonus shares.
Implication: Shareholders whose holdings are eligible as per the records on the record date receive the bonus shares. No separate application is required for a bonus issue.
What it is: The date from which a security trades without the entitlement to the specified corporate action. For a bonus issue, the ex-date is determined in accordance with the applicable stock-exchange and settlement framework.
Implication: Transactions around the ex-date and record date are subject to the applicable settlement cycle and corporate-action rules.
What it is: The post–Record Date process where the company and depository credit bonus shares to eligible demat accounts.
Implication: Under SEBI's September 2024 framework, for applicable bonus issues, T is the record date, T+1 is the deemed date of allotment, and the bonus shares are made available for trading on T+2, subject to the prescribed process.
Summary: Eligibility for bonus shares is determined based on the applicable record date and corporate-action settlement framework. Eligible shareholders receive the bonus shares through the depository system, with the allotment and trading availability following the applicable SEBI and stock-exchange timelines.
NSE and BSE Corporate Action Pages: Both exchanges publish corporate action calendars for listed companies, including details such as bonus ratio, record date, and ex-date where applicable. This information is updated based on company filings and exchange processing.
Company Announcements Filed with the Exchanges: Listed companies disclose relevant information about proposed bonus issues to the stock exchanges in accordance with applicable regulations. These disclosures, including board-meeting outcomes and record-date information, are available through the respective exchange's corporate-filings sections.
Annual Reports: A company's annual report may reference past bonus issues and, in some cases, indicate reserve levels relevant to future capitalisation, though it does not announce upcoming bonus issues in advance.
The bonus ratio and record date for a specific bonus issue are disclosed by the company through its filings with the stock exchanges. The applicable ex-date and other corporate-action details are also available through the stock exchanges' corporate-action information.
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Bonus shares are additional shares issued free of cost to existing shareholders by capitalising a company's reserves, increasing the number of shares held without changing the overall ownership value at the time of issue.
When bonus shares are issued, the number of outstanding shares increases and the market price generally adjusts to reflect the increased number of shares, all else being equal. The actual market price may subsequently vary based on market conditions and other factors.
Bonus shares are generally not taxed merely on receipt. When bonus shares are subsequently sold, capital gains tax may apply. Under the applicable income-tax provisions, the cost of acquisition of bonus shares is generally taken as nil, and the applicable holding-period and tax rules determine the tax treatment.
Upcoming bonus issues can be tracked on stock exchange websites, company announcements, or financial news platforms. These sources regularly publish corporate actions, including record dates and bonus ratios, as declared by listed companies.
Bonus shares are additional shares issued by a listed company to its existing shareholders, free of cost. They are distributed in a fixed ratio based on the number of shares already held, and do not affect shareholding percentage.
Shareholders whose holdings are eligible as per the records on the relevant record date are entitled to receive bonus shares. The bonus shares are allotted in the announced bonus ratio and credited through the depository system.
Bonus shares are issued by capitalising eligible reserves, such as free reserves, the securities premium account or the capital redemption reserve account, subject to applicable legal and regulatory requirements. The company announces the relevant corporate-action details, including the record date, through the prescribed channels.
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