What is the difference between bonus and dividend

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To find out more about cookies on this website and how to delete cookies, see our privacy notice. The issue of bonus shares being down the earnings per share and hence the market price of the shares go down. A company does not have to pay tax on the issue of bonus shares. However, if the shareholder plans to sell or purchase bonus shares, it is liable to tax. All the incomes arising from securities are taxable under the head Capital Gains, according to the Income Tax Law of India.

The capital gain can be of two types, short term or long term. A long term capital gain is when shares are held by the investor for over 12 months, and such incomes not liable to tax under section 10 of the act. Dividends: When a company wishes to declare dividends to the shareholders, the company has to pay dividend distribution tax. The dividend distribution tax or DDT is levied on the earnings of the company.

For example, if a company generates a profit of Rs. Out of the if the company decides to distribute rupees as dividends, Rs. The gross dividend distribution tax at Rs. Hence, the amount of tax will be Rs. To arrive at the dividends given on per share, this amount of Rs. The dividend income in the hand of an investor is not liable to tax, up to a certain limit. Only the dividends given by domestic or Indian companies are exempt, whereas the ones given by foreign companies to Indian investors are liable to tax.

If the tax is already paid the country of origin, then the investor can claim for a refund later on. It is clearly ascertained that bonus shares have relatively minor complications and tax implications, hence are preferred over dividends by the companies.

Sometimes, the company issues additional shares to its current shareholders based on the number of shares each shareholder owns. If the shareholders of the company are qualified for bonus shares, it is credited to their Demat account. Sometimes a company may have insufficient funds to pay dividends despite earning profits. In this scenario, the company issues bonus shares instead of dividends to its existing shareholders in addition to their existing holders of shares in the company.

Bonus shares are also known as capitalization of profits and are distributed to the shareholders from either the reserves or profits of the company. Bonus shares are issued by companies instead of paying a cash dividend. The various benefits an investor can receive are as follows:. Stock dividend is the payment made in the form of shares instead of cash to issue wealth to the shareholders of the company. Stock dividends are also known as scrip dividends. Investments ensure safety, growth, and income to an individual.

Even though each investment has its own unique set of benefits and risks, it highlights the importance behind how they help most individuals acquire wealth, fund retirement, and accumulate savings and businesses to make the most out of their profits and earnings.