A listed company allots bonus shares to Mr. A on 01-09-2023 without any payment from him. As per NISM Series X-B Chapter 13, what is the cost of acquisition of these bonus shares for computing capital gains on their subsequent sale?

[ A ]Nil, since the bonus shares were allotted to Mr. A without any payment[ CORRECT ]

[ B ]The fair market value of the shares on 01-09-2023, the date of allotment

[ C ]The face value of the bonus shares allotted

[ D ]The weighted average cost of the original shares and the bonus shares taken together

Takeaway

Option A is correct: since bonus shares are allotted to a shareholder without any payment, their cost of acquisition for capital gains purposes is nil.

Derivation

NISM X-B Section 13.1.1 states that where bonus shares are allotted to a shareholder without any payment based on holding of the original shares, the cost of acquisition of such bonus shares is nil. The fair-market-value rule is an exception that applies only where the bonus shares were themselves issued before 01-04-2001, so it is irrelevant for an allotment made in 2023. A common error is confusing this with the capital gains computation on the original shares, which do carry an actual purchase cost.

Why the others fail

B — The fair market value of the shares on 01-09-2023, the date of allotment

Fair market value is used as the cost of acquisition only for bonus shares allotted before 01-04-2001; for bonus shares allotted thereafter, including in 2023, the cost of acquisition is nil.

C — The face value of the bonus shares allotted

The book does not use face value to determine the cost of acquisition of bonus shares; since no payment is made by the shareholder, the cost of acquisition is nil.

D — The weighted average cost of the original shares and the bonus shares taken together

No weighted-average method is prescribed for bonus shares in the book; the cost of acquisition of the bonus shares themselves is nil, independent of the original shares' cost.