Why long-term investors getting bonus shares might pay higher LTCG tax

The relief: if your equity gains are less than Rs100,000 in a financial year, you can breathe easy

After the Union Budget 2018-19 decided to impose a 10 per cent tax on capital gains on equities, long-term investors receiving bonus shares could end up paying higher long-term capital gains (LTCG) tax. According to the new law, the cost of acquisition of the bonus share should be considered zero when calculating LTCG tax on it. This could lead to an investor paying much higher tax on selling bonus shares.

Assume that a company announces a bonus issue in the ratio of 1:1. The investor gets one share for every share held, which he had purchased for Rs300 some years back.