Bonus Shares to Preference Shareholders

Hi Yogesh, Bonus shares issued to Preference share holders is taxable in the hands of hsareholder only at the time of Sale of such shares under Capital gains, it is not taxable at the time of receipt of bonus shares, but company has to pay DDT u/s 115O.

 yes ...Amit is right....

apart from 2(22) (e), dividend is taxable on payment side not at the receipient side

As per section 2(22)(b) the distribution of bonus to prefernece shareholder is regarded as the deemed dividend.

now the logic behind it is that as per companies act the issue of bonus is permitted only to Equity share holder fully paid up...now any attempt by the company to capitalise its share by way of bonus to anyother class of share will not be regarded as capitalisation but will be regarded as distribution of the profits and this fact is very well recognised by the IT dept and therefore

the distribution f bonus to prefernce share holder is regarded as deemed dividend and the company will pay the corporate dividend tax....

now since these bonus share are provided free of cost to the holder..so when the holder sells these shares..at market value.....the whole consideration will be taxable in his hands after deducting any selling expenses if so incurred, under the head of the capital gain..

Amit, Praveen & Bonita,

Thnx for ur replies.