What is the tax implication of a bonus/rights issue on equity shares?
Under Section 55(2)(AA), bonus on equity shares has a zero (nil) cost of acquisition. The holding period is calculated from the date of allotment of equity shares. The net sales proceeds are treated as the capital gain. The period of holding of such issue is reckoned from the date of the allotment of such issue. The cost of acquisition of the rights issue on equity shares is the amount actually paid for acquiring such right according to Section 55(2) (AA) (iii). The holding period is reckoned from the date of allotment. Where there is a transfer of these rights, the cost of acquisition of such rights is to be taken as ‘nil’ according to Section 55(2) (AA) (ii). The sale price of such transferred rights will be taken as capital gain. The period of holding in the hands of the transferor is computed from the date of offer, made by the company to the date of renouncement. In case of the transfer of such rights, the cost of acquisition is the aggregate of the amount of purchase price, paid
