Bonus, split and buyback
Three company actions that change the number of shares, and what each one does to a holding
Rules as on 12 October 2026
Verified 12 October 2026
For training and education only. Not investment advice.
Trainer notes
Ask the room: a company gives you one extra share for every share you hold. Are you richer the next morning? Take a show of hands and return to it on slide 4.
A bonus or a split changes how many shares there are. It does not change what the company is worth.
A buyback is different. Cash leaves the company and the shares it buys are cancelled, so each remaining share is a slightly larger slice of a slightly smaller company.
Trainer notes
Keep the three apart from the start. Bonus and split are bookkeeping: no cash moves. In a buyback the company pays cash to shareholders who sell. Share prices can still move around any of these for other reasons.
Three actions, three mechanisms
Bonus issue
Extra fully paid shares given to existing holders at no charge. The company turns part of its reserves into share capital. Face value stays the same.
Stock split
Each share is divided into shares of a smaller face value, for example one ₹10 share into two ₹5 shares. Share capital and reserves stay as they were.
Buyback
The company buys its own shares from shareholders and cancels them. It pays out of free reserves, the securities premium account or a fresh issue.
Source: Companies Act, 2013, sections 61 (sub-division), 63 (bonus shares) and 68 (buy-back).
Trainer notes
Face value is the nominal value printed on a share, often ₹10, ₹5, ₹2 or ₹1. It is not the market price. Reserves are past profits and share premium kept in the business. In a buyback it is the company that buys, not the promoter.
Are you richer after a bonus or a split?
ONE HOLDING, TWO WAYS
You hold 100 shares of ₹10 face value. The market price is ₹600.
Your holding is worth ₹60,000.
The company has 1,00,000 shares, so you own 0.1% of it.
- 1:1 bonus: you get 100 more shares. You hold 200 shares of ₹10 face value; the company now has 2,00,000 shares.
- Split of ₹10 into two ₹5 shares: you hold 200 shares of ₹5 face value; the company now has 2,00,000 shares.
- Either way the company is unchanged, so the price adjusts to about ₹300. 200 × ₹300 = ₹60,000.
- Your slice is the same: 200 ÷ 2,00,000 = 0.1%.
Result: Twice the shares at half the price. The holding is worth the same on the day of the adjustment.
Illustration with an invented company and assumed figures. Actual prices also move for other reasons.
Trainer notes
Return to the opening question. The exchange adjusts the price on the ex-date. After that the price moves with the market as usual, so the holding may be worth more or less a week later. That movement is not caused by the arithmetic of the bonus or split.
Same result for you, different books
What changes in the company's accounts after a 1:1 bonus and after a split of ₹10 into two ₹5 shares.
| Item | After a 1:1 bonus | After the split |
|---|---|---|
| Face value of a share | Unchanged at ₹10 | Halved to ₹5 |
| Number of shares | Doubles | Doubles |
| Share capital | Doubles | Unchanged |
| Reserves | Fall by the same amount | Unchanged |
| Net worth and profit | Unchanged, so profit per share halves | Unchanged, so profit per share halves |
Source: Companies Act, 2013, sections 61 and 63. A bonus may not be paid out of reserves created by revaluing assets, and may not replace a dividend.
Trainer notes
Net worth is share capital plus reserves. A bonus moves an amount from reserves to share capital, so the total does not change. A bonus needs enough eligible reserves and approval by shareholders in a general meeting; a company in default on deposits, debt or employees' statutory dues may not issue one.
What a buyback does to the numbers
ONE COMPANY
A company has 10,00,000 shares and a yearly profit of ₹1 crore.
It buys back 1,00,000 shares at ₹250 each and cancels them.
You hold 9,000 shares and do not sell.
- Cash paid out: 1,00,000 × ₹250 = ₹2.5 crore. The company's cash and net worth fall by that amount.
- Shares left: 10,00,000 − 1,00,000 = 9,00,000.
- Profit per share, if profit stays at ₹1 crore: before ₹10.00, after ₹1 crore ÷ 9,00,000 = ₹11.11.
- Your slice: before 9,000 ÷ 10,00,000 = 0.9%. After 9,000 ÷ 9,00,000 = 1.0%.
Result: Fewer shares, less cash. Those who stay own a larger slice of a company that now holds less.
Illustration with an invented company and assumed figures. Profit is assumed unchanged; it may not be.
Trainer notes
The cash paid out no longer earns anything for the company, so profit may be a little lower afterwards; the example ignores that. A higher profit per share after a buyback comes from the smaller share count. It does not show that the business earned more.
How a listed company's buyback works
The ceiling
Up to 25% of paid-up capital and free reserves, and 25% of equity shares in a year. Debt after it: at most twice that base.
Tender offer
The company offers to buy from holders in proportion. 15% of the shares sought are reserved for holders of up to ₹2 lakh by market value.
Through the stock exchange
Allowed again from 1 August 2026, for less than 15% of capital and free reserves. The company may not buy from its promoters this way.
Exchange-route timeline
The offer opens within four working days of the public announcement and closes within 66 working days of opening.
Afterwards
The shares bought are extinguished. For six months the company may not issue the same kind of shares, with exceptions such as bonus issues.
Sources: Companies Act, 2013, section 68; SEBI (Buy-Back of Securities) Regulations, 2018, as amended up to 6 July 2026.
Trainer notes
The reservation for small shareholders is 15% of the shares sought or their entitlement by shareholding, whichever is higher. A third route, book building, also exists. The exchange route was reduced in steps and closed from 1 April 2025 to 31 July 2026. On that route at least 75% of the amount set aside has to be used, 40% of it in the first half of the period. A board may approve up to 10% on its own; above that shareholders pass a special resolution.
Buyback tax: three sets of rules
The date of the buyback decides which rule applies.
| Buyback made | Who paid the tax | How it worked |
|---|---|---|
| Up to 30 Sep 2024 | The company | An additional income-tax of 20%, plus surcharge and cess, on the income it distributed. The shareholder's receipt was exempt. |
| 1 Oct 2024 to 31 Mar 2026 | The shareholder | The whole amount received was taxed as dividend at the shareholder's own rate. The cost of the shares became a capital loss. |
| From 1 Apr 2026 | The shareholder | The amount received minus the cost is a capital gain. Promoters also pay an extra tax, taking their total to 22% (domestic company) or 30% (others). |
Sources: Income-tax Act, 1961 (s.115QA; s.2(22)(f) from 1 Oct 2024); Income-tax Act, 2025, s.69, as amended by Finance Act, 2026. Rates before surcharge and cess.
Trainer notes
For shareholders other than promoters the Income Tax Department stated the rates as 12.5% on long-term gains, 20% on short-term gains on listed shares and slab rates on short-term gains on unlisted shares. Before October 2024 the company-level tax came to about 23.3% with surcharge and cess. A capital loss from the 2024 to 2026 period can be set off only against capital gains. This is a description of the law, not tax advice; a client's own tax position is for a tax professional.
Tax on bonus and split shares
Neither is taxed when the shares arrive. Tax arises when the shares are sold.
Bonus shares: cost
The cost of a bonus share is generally taken as nil. On sale the whole sale price is the gain. The original shares keep their own cost.
Bonus shares: period
The holding period of a bonus share runs from its date of allotment, not from the date the original shares were bought.
Split shares
A split is not a sale. The total cost stays the same and is spread over the larger number of shares.
Sources: Income-tax Act, 1961, s.55(2)(aa), s.2(42A); Income-tax Act, 2025, s.2(101)(c)(D); tax-filing guides, 24 Jul 2025 and 4 Oct 2026 (secondary).
Trainer notes
Example with assumed figures: 100 shares bought at ₹600 and a 1:1 bonus give 100 shares with a cost of ₹600 each and 100 with a cost of nil. Listed shares held for more than 12 months are long-term. For split shares the Act does not state in terms when the holding period starts; one published opinion (July 2025) notes two readings, from the original purchase or from the split. Older bonus shares may have special cost rules. Do not work out a client's tax.
If you learnt this from older material
What older decks say
- The promoter buys the shares back.
- The company pays the buyback tax; the investor pays nothing.
- A company can buy back from the market at any time.
- No date is given for when bonus shares can be traded.
What holds now
- The company buys, and cancels what it buys.
- The shareholder pays capital gains tax, from 1 April 2026.
- Exchange route closed on 1 April 2025; reopened 1 August 2026.
- Trading starts two working days after the record date.
Take-away: The arithmetic of these actions has not changed. The tax and the procedure have, more than once.
Sources: Finance Act, 2026; SEBI Buy-Back Regulations as amended to 6 Jul 2026; SEBI circular of 16 Sep 2024 (bonus shares).
Trainer notes
The two-day timeline applies to bonus issues announced on or after 1 October 2024: shares are credited by the working day after the record date and trade from the day after that. Between October 2024 and March 2026 buyback receipts were taxed as dividend; material from that period is also out of date.
Four things people get wrong
Misconception'A bonus is free money.'
What is trueNothing is paid for the shares, but nothing is added to the company either. More shares, each a smaller slice.
Misconception'After a split the share is a bargain.'
What is trueThe price per share is lower because each share is a smaller slice. Price against profit is the same as before.
Misconception'A buyback means the price will rise.'
What is trueA buyback reduces the share count and the cash. What the price does afterwards depends on the business and the market.
Misconception'Bonus shares are tax-free.'
What is trueThere is no tax on receiving them. On sale their cost is generally nil, so the whole sale price is taxed as gain.
Sources: slides 3, 7 and 9 (Companies Act, 2013; tax-filing guides, secondary).
Trainer notes
On the second point, see the deck 'P/E, PEG and P/B': a lower share price says nothing about value. On the third, companies give different reasons for a buyback, and a tender price above the market price applies only to the shares accepted.
Check yourself
Question 1: You hold 50 shares at a market price of ₹900. The company issues a 2:1 bonus (two new shares for each one held). How many shares do you hold, and at about what price?
Answer: 150 shares. The holding was worth 50 × ₹900 = ₹45,000, so the adjusted price is about ₹45,000 ÷ 150 = ₹300.Question 2: A company with 20,00,000 shares and a profit of ₹3 crore buys back 5,00,000 shares. If profit is unchanged, what is profit per share before and after?
Answer: Before: ₹3 crore ÷ 20,00,000 = ₹15. After: ₹3 crore ÷ 15,00,000 = ₹20. The rise comes from fewer shares, not more profit.Question 3: A client says: 'In a buyback the company pays the tax, so what I receive is tax-free.' What has changed?
Answer: That was the rule up to 30 September 2024. For a buyback from 1 April 2026 the shareholder pays capital gains tax on the amount received minus cost. We explain the rule; the client's tax working is for a tax professional.
Trainer notes
Question 1 tests the ratio wording: 2:1 here means two new shares for each share held, so the count triples.
Sources and disclaimer
Sources for the figures in this explainer
- Companies Act, 2013: sections 61 (sub-division), 63 (bonus shares) and 68 (buy-back).
- SEBI (Buy-Back of Securities) Regulations, 2018, as amended up to 6 July 2026.
- SEBI circular CIR/CFD/PoD/2024/122 of 16 September 2024 on trading of bonus shares on T+2.
- Finance (No. 2) Act, 2024; Finance Act, 2026; Ministry of Finance press release of 1 February 2026 (buyback tax).
- Bonus and split share tax: tax-filing guides (reviewed October 2026) and a July 2025 professional opinion. Secondary.
- All companies, holdings and figures in the examples are invented. They do not refer to any real company.
This material is for training and investor education only. It is not investment, tax or legal advice and is not a recommendation to buy, sell or hold any security or scheme. Examples use assumed figures unless a source and date are shown. Mutual fund investments are subject to market risks; read all scheme related documents carefully. Trustner Asset Services Pvt. Ltd. is an AMFI-registered Mutual Fund Distributor (ARN-286886).
Trainer notes
Read the sources aloud only if asked. The tax points describe the law and are not tax advice. Bonus and split tax rests on secondary guides, so quote no section numbers to clients.