Corporate Actions in the Stock Market India: Dividends, Splits, Bonuses, Rights and Buybacks

Direct Equity — Arc 4, Article One

The Two Dates

Record date and ex-date: the only timing that matters

Every corporate action runs on a small calendar, and two entries on it decide whether the benefit reaches you.

The record date is the day the company photographs its register of shareholders. Whoever appears in that photograph gets the dividend, the bonus shares or the rights entitlement. The ex-date is the first day the share trades without the benefit attached — buy on or after it and the entitlement stays with the seller. The day before the ex-date is the last “cum” day, when the share still carries the benefit.

Under India’s T+1 settlement cycle, described in the order types and settlement article, the ex-date and the record date now generally fall on the same day. The practical rule is therefore blunt: you must buy at least one trading day before the ex-date, so the shares are actually settled into your demat account when the photograph is taken. Buying on the ex-date itself, however early in the session, does not work. This is the single most common corporate-action mistake, and it costs people entitlements every month.

Two other dates fill in the picture. The announcement date is when the board declares the action, subject to shareholder approval where required — an interim dividend is declared by the board, a final dividend is approved by shareholders at the annual general meeting. The payment or credit date is when the money or the shares actually reach you, usually within a few weeks. Both are published by the company and listed on the exchanges’ corporate actions pages, and holders of derivative contracts should note that the exchange separately adjusts strike prices and lot sizes for these events under a published methodology, so that positions are not changed in value by the action itself.

Now the point that governs the rest of this article. On the ex-date, the price adjusts for the benefit. A share at ₹500 that goes ex a ₹10 dividend opens with a reference price around ₹490. A share at ₹1,000 that goes ex a 1:1 bonus opens around ₹500 with twice as many shares in issue. The exchange does this arithmetic deliberately, because the value has left the company or been divided into more pieces. There is no window in which the benefit is free.

Dividends

Dividends: cash out of the business, into your slab

A dividend is a distribution of profit, declared as an amount per share and paid straight into your bank account. It is the most straightforward corporate action and the most widely misunderstood, because the money feels like a gift when it is in fact a transfer: cash moves out of a business you own into a bank account you own, and the share price falls by roughly the same amount on the ex-date. Your wealth immediately after is what it was immediately before, minus what the tax authority takes.

The tax position, which has been stable since 2020. Dividend distribution tax was abolished with effect from the 2020-21 financial year, and dividends are now taxable in your hands under “income from other sources” at your slab rate. There is no separate exemption for dividend income. The paying company deducts tax at source at 10% (20% where PAN is not furnished) once dividends paid by that company cross a threshold in a financial year — raised from ₹5,000 to ₹10,000 per company per year with effect from 1 April 2025. The threshold is per payer, not across your whole portfolio, and TDS is a credit against your final liability, not the final tax. Investors below the taxable limit can file Form 15G, or Form 15H for senior citizens, to avoid the deduction. The only deduction permitted against dividend income is interest on money borrowed to buy the shares, capped at 20% of the dividend.

What this means for how you value a dividend. For an investor in a high slab, a rupee paid out as dividend is worth materially less than a rupee retained inside a business that can reinvest it well — the payout is taxed immediately at slab, while the retained rupee compounds and is taxed only on sale, at capital gains rates. That is an argument about arithmetic, not about whether dividends are good. For a retired investor needing income it is a different calculation entirely. What is not a sound argument is treating dividend yield as free money on top of price return: total return is the only figure that means anything.

One trap worth naming. A high dividend yield often means the price has fallen, not that the payout is generous — yield is the dividend divided by the price, and a collapsing denominator flatters it. Check whether the payout is covered by cash from operations before treating it as a sign of health, using the tools in the ratios article. And buying a share purely to capture an upcoming dividend achieves nothing before tax and loses money after it, which is why the law also disallows certain losses created by buying just before a record date and selling shortly after.

Splits And Bonuses

Stock splits and bonus shares in India: the same non-event, twice

These two arrive wrapped in celebration and are, in wealth terms, nothing happening. Both increase the number of shares you hold and reduce the price proportionately. Neither moves a rupee in or out of the company.

A stock split cuts the face value of the share — say from ₹10 to ₹2 — and multiplies the count accordingly. Two hundred shares at ₹500 become a thousand shares at ₹100. A bonus issue capitalises the company’s reserves into new shares given free to existing holders in a ratio such as 1:1. The face value stays the same, the reserves shrink, the share capital grows, and again your total value is unchanged. The difference is accounting, not economics — but the tax consequences differ, and that difference is worth knowing.

Question	Stock split	Bonus issue
Face value of the share	Reduced in the split ratio	Unchanged
Your cost of acquisition	Total cost unchanged; cost per share divided in the same ratio	Total cost unchanged; cost of the bonus shares themselves is treated as nil
Holding period	Runs from your original purchase, on all shares	Runs from your original purchase on the old shares, but from the date of allotment on the bonus shares
Taxable when it happens	No	No
Effect on your wealth	None	None

The holding-period row is where money is actually lost. Because bonus shares carry a nil cost and a fresh holding period, selling them soon after allotment produces a gain equal to the entire sale value, taxed at short-term rates. Sell the older shares instead and the cost and long-term status are intact. Brokers’ profit and loss statements handle this correctly, but investors selling “the free shares” because they feel free frequently do not think it through.

There is also an anti-avoidance rule to be aware of, usually called bonus stripping. If you buy shares shortly before a bonus record date and sell the original shares at a loss shortly after — the loss arising simply because the price adjusted for the bonus — that loss is not allowed to you as a deduction; it is added to the cost of the bonus shares instead. The specified time windows are defined in the law, so check the current provision before planning anything around a bonus date. The short version: the arrangement that looks like manufactured loss has already been thought of.

Why do companies do it at all? Mainly to lower the quoted price so the share looks more affordable and trades more actively. That is a real effect on liquidity and a purely cosmetic effect on value. A company worth ₹40,000 crore before a 10:1 split is worth ₹40,000 crore afterwards, and a share that “fell” from ₹2,000 to ₹200 is not cheap — it is the same share cut into ten pieces. If a bonus or split changes your view of a business, the announcement has done its marketing job.

Rights Issues

Rights issues: the one that demands a decision

A rights issue offers existing shareholders the chance to buy new shares at a set price, in proportion to what they already hold — one new share for every four held, at ₹400 when the market price is ₹500, for instance. Unlike everything else in this article, doing nothing is an active and usually bad choice.

Your entitlement arrives in your demat account as a rights entitlement, which trades on the exchange for a short window. You have three options. Subscribe, paying the issue price and receiving the new shares — your cost of acquisition for them is what you paid, and their holding period starts on allotment. Renounce, selling the rights entitlement to someone else during the trading window — the sale proceeds are taxable, and because the entitlement was received at no cost with a short life, that gain is a short-term capital gain on essentially the full amount. Let it lapse, in which case the entitlement expires worthless, you receive nothing, and your ownership stake is diluted by everyone else who did subscribe. That third option is the one to avoid by simply putting the dates in your calendar.

The judgement call is harder than it looks, because the discount is a distraction. A rights price below the market price is not a bargain — the market price itself falls towards the blended value once the shares go ex-rights, and the discount exists to make the offer attractive enough to be taken up. Buying at a “discount” simply returns to you some of the dilution you were about to suffer. The real question is the one the discount hides: why does this company need money from its own shareholders, and what will it do with it? Funding a specific expansion the business has earned the right to make is one answer. Repairing a balance sheet that got into trouble is a very different one, and repeat rights issues from the same company are a pattern worth taking seriously.

One sizing note that connects to the position sizing article: subscribing increases your rupees committed to a company whose evidence may have deteriorated. Run the same test you would run for any purchase — would I buy more of this business today at this price? — rather than treating the rights issue as an obligation that comes with ownership.

Buybacks

Buyback of shares in India: the rules changed twice in two years

In a buyback, the company purchases its own shares and cancels them. Cash leaves the business, the share count falls, and every remaining shareholder owns a slightly larger slice of what is left. It is the other way of returning money to owners, and in India it has spent the last two years being reshaped by tax policy.

Two mechanisms. In a tender offer, the company invites shareholders to offer shares at a fixed price, usually above the market price, with a record date deciding who is eligible and a portion reserved for small shareholders — those holding up to ₹2,00,000 by value. If the offer is oversubscribed, only part of what you tender is accepted, in an acceptance ratio published afterwards, and the rest is returned to your account. In an open market buyback, the company simply buys shares on the exchange over a period, and there is nothing for you to do or decide.

The tax treatment depends entirely on when the buyback happened. Until 30 September 2024, the company paid a buyback tax and the proceeds were exempt in the shareholder’s hands. For buybacks between 1 October 2024 and 31 March 2026, the entire consideration you received was treated as a deemed dividend and taxed at your slab rate under income from other sources, with the cost of the shares bought back becoming a capital loss you could set off against other capital gains — an unusually harsh treatment, since a receipt was taxed without any deduction for what you had paid. From 1 April 2026 the position has been restored to capital gains treatment: the difference between the buyback consideration and your cost of acquisition is taxed as a capital gain, with higher rates proposed for promoter shareholders. If you participated in a buyback in the last two years, the treatment for that transaction follows its own date, and this is exactly the kind of detail worth confirming with your tax adviser rather than assuming.

The market’s reaction to the middle regime is a useful lesson in how tax shapes corporate behaviour. With buyback proceeds taxed as dividends at slab rates, buybacks became a poor way to return cash, and companies largely stopped: the total value of listed-company buyback offers fell from around ₹49,800 crore in 2023-24 to roughly ₹7,900 crore in 2024-25, a decline of more than 80%, with only a handful of offers in the year that followed. Corporate actions are not purely about business strategy. A meaningful part of what companies choose to do with surplus cash is decided by which route the tax code currently punishes least.

As for what a buyback signals — the charitable reading is management believing the shares are worth more than the price. The less charitable readings are equally common: a tax-efficient substitute for dividends, a way to lift earnings per share by shrinking the denominator, or a way for promoters to raise their stake without buying anything. Judge it the way you would judge any purchase: at what price, with whose money, and instead of what.

Demergers And Mergers

When one holding becomes two, or two become one

In a demerger, a company separates a business into a new entity and gives its shareholders shares in that entity, in a stated ratio. You wake up owning two companies instead of one, with no money spent. In an amalgamation or merger, the reverse happens: your shares in one company are exchanged for shares in another at a swap ratio.

For a qualifying demerger, three things follow, and all three matter at tax time. Nothing is taxable at the moment the new shares are credited. Your original cost of acquisition is split between the two holdings, in the proportion of the net book value of the assets transferred to the net worth of the company before the demerger — a ratio the company publishes in a tax note on its website, and the only correct basis for the calculation. And the holding period of the new shares includes the period you held the original, so a long-held investment does not restart the clock.

That cost-splitting rule is the source of a recurring nasty surprise. Brokers’ profit and loss reports often show the new shares as having zero cost, which makes any sale appear to be pure profit. It is not, and filing on that basis overstates your gain, sometimes substantially. Download the company’s demerger tax note, apportion the cost yourself, and keep the working with your records — the reconciliation work described in the equity taxation article depends on it.

Two practical notes. The demerged company’s shares usually list separately a few weeks after the record date, and that first period of price discovery can be violent in both directions, since holders who wanted the parent may have no interest in the offspring. And in the interval you may hold something you never researched — a business you did not choose, sized by an accident of a ratio rather than by your own decision. That deserves a deliberate answer at the next portfolio review rather than passive ownership by default.

The Pattern

What all of these have in common

Strip away the announcements and every corporate action in this article is value-neutral at the instant it occurs. What differs is whether cash leaves the company, whether you must do something, and what the tax code makes of it.

Five questions settle any corporate action you meet, including ones not covered here:

Action	Share count changes?	Cost of acquisition changes?	Do I have to act?	Taxable when it happens?
Dividend	No	No	No	Yes — at your slab rate
Stock split	Yes, up	Per share, divided in the ratio	No	No
Bonus issue	Yes, up	Bonus shares carry nil cost	No	No
Rights issue	Only if you subscribe	New shares cost the issue price	Yes — subscribe, sell the entitlement, or lose it	Only if you sell the entitlement
Buyback, tender offer	Yes, down, if accepted	Cost of the shares taken is used up	Yes — decide whether to tender	Yes — treatment depends on the buyback date
Demerger	New company added	Original cost split between the two	No, but review the new holding	No

Keep a note of every corporate action affecting your holdings, with dates and ratios, alongside the research file from the research process. Three years later, when a broker’s statement disagrees with your records at filing time, that note is what settles the argument.

Key Takeaways

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Frequently Asked Questions

Your questions answered

Should I buy a share just before the record date to get the dividend or bonus?

No, if that is the only reason. The price adjusts downward on the ex-date by roughly the value of what is being distributed, so before tax you end up exactly where you started — and after tax, having converted an untaxed unrealised position into a slab-rate dividend, you end up worse. The law also blocks the obvious manoeuvres around these dates by disallowing certain losses created by buying shortly before a record date and selling shortly after. Buy a company because you want to own it; if a dividend or bonus arrives while you hold it, that is incidental.

Bonus shares are free. Doesn’t that make me richer?

They are free in the sense that you paid nothing for them, and worth nothing extra in the sense that the price adjusts for them. Two hundred shares at ₹500 becoming four hundred shares at ₹250 is the same ₹1,00,000. What the company has done is move money from its reserves into its share capital — an internal accounting transfer that does not create earnings, cash or value. The reason the announcement moves prices is that investors read it as management signalling confidence, which is a statement about sentiment rather than about the arithmetic.

What happens if I ignore a rights issue?

The worst of the available outcomes. Your entitlement lapses, you receive nothing for it, and your percentage ownership shrinks because other shareholders bought new shares while you did not. If you do not want to put more money into the company — a perfectly reasonable position — sell the rights entitlement during its trading window instead, which at least converts it into cash. That sale is taxable as a short-term gain on effectively the whole amount, since the entitlement cost you nothing. The one thing to avoid is letting the window close through inattention.

Should I tender my shares in a buyback?

It is a sale, so judge it as a sale: is the buyback price above what you think the business is worth, and does selling fit one of the three legitimate reasons from the portfolio article? Two mechanical points then matter. Small shareholders — those holding up to ₹2,00,000 by value — have a portion reserved for them, so acceptance ratios in that category are often much better than for larger holders. And the tax treatment depends on the date of the buyback, which has changed twice since 2024; confirm which regime applies before you calculate what you will actually keep. Tendering merely because the price is above the market price, without a view on value, is selling for the same reason people sell winners everywhere else.

My demerged shares show as pure profit in my broker’s statement. Is that right?

Usually not, and filing on that basis will overstate your gain and your tax. In a qualifying demerger your original cost is apportioned between the old and new holdings in the ratio of net book value the company publishes in its demerger tax note, and the holding period of the new shares includes the time you held the original. Many broker systems simply show the new shares at zero cost because they have no way to know the apportionment. Download the company’s tax note, do the split yourself, keep the working, and reconcile it against your annual information statement at filing time.

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