Dalal Kapital: Bonuses spell tax saving too

MUMBAI: Bonuses are not just about getting extra shares free. There is a tax benefit attached to the liberal bonuses announced by leading corporate such as Infosys Technologies and Wipro.
Short term players see good opportunities to save on capital gain tax by dealing in the shares of bonus-paying companies. This can be done without losing the right on free shares. Market sources say players have been seen buying the shares at cum-bonus price, which will be subsequently sold at ex-bonus price.
The cum-bonus price is the normal price not adjusted for bonus, while the ex-bonus is adjusted for bonus. The difference between the cum-bonus and ex-bonus price is capital loss to investors.
Such a loss — a reasonably large amount in case of high-priced shares such as Infosys Technologies and Wipro — can be used to set off against capital gains made on other securities, if any. Currently, short term capital gain attracts tax of around 33% on higher side, according to market sources.
The shares are trading cum-bonus till the record date or book-closure date. On the record date, the price automatically get adjusted on the basis of the bonus ratio. Only those shareholders whose names appear on the company’s books on the date, are entitled to receive bonus shares. Investors willing to save capital gains tax can sell shares at ex-bonus price, to ensure that they get free shares.

Let’s explain this with an example of Infosys Technologies. The IT heavyweight announced a liberal bonus issue of 3 shares for every 1 share held by the shareholders. The shares are currently trading at Rs 5,209, which is a cum-bonus price.
Infosys has fixed a record date as July 2, the day on which the shares will become ex-bonus. On becoming ex-bonus, the share price will be reduced to 25% of the closing price on the day prior to record or book-closure date.
“There is nothing illegal about trading in bonus shares to save on capital gain tax. More and more companies are expected to go for bonus issues and so there will be growing tax-saving opportunities available to short term players in coming days,� said a broker.