Bonus Issue of Shares: Record Date, T+2 Credit and What Happens to Your Holding

A company announces a 1:1 bonus and the stock jumps five per cent before lunch. A week later your demat statement shows twice as many shares, the price has halved, and your portfolio value is exactly where it was. So what did you actually get? A bonus issue of shares is one of the most misunderstood corporate actions on Dalal Street, mostly because the word “bonus” promises something the arithmetic doesn’t deliver.

This piece goes through where bonus shares come from, the legal conditions a company has to meet, the record date timeline SEBI now prescribes, and a full worked example with a made-up company so you can see the numbers move. Then we look at what a bonus can tell you about a business, and what it can’t.

What a bonus issue of shares really is

Strip away the headline and a bonus issue is an accounting entry. The company moves money from one line of its balance sheet (reserves) to another (share capital) and issues new, fully paid shares to existing shareholders in proportion to what they already hold. No cash comes in. No cash goes out. Nobody outside the existing shareholder base gets anything.

The ratio tells you the proportion. A 1:1 bonus means one new share for every one you hold. A 2:1 means two new shares for each one held, so 100 shares become 300. A 1:2 means one new share for every two held, so 100 shares become 150. Read the announcement carefully, because the order of the two numbers is what trips people up, and companies sometimes spell it out in words to avoid exactly that confusion.

Because every shareholder gets new shares in the same proportion, your percentage ownership of the company stays the same. If you owned 0.01% before the bonus, you own 0.01% after it. The pie hasn’t grown. It has just been cut into more slices.

Where the shares come from: Section 63 of the Companies Act

Indian law is fairly specific about what a company can capitalise. Section 63 of the Companies Act, 2013 allows fully paid-up bonus shares to be issued out of three pots only:

• free reserves,
• the securities premium account, or
• the capital redemption reserve account.

There is one explicit exclusion. A company cannot issue bonus shares by capitalising reserves created by revaluing its assets. That rule matters more than it looks. Revaluation gains are paper gains on land or buildings; letting a company turn them into share capital would let it dress up a balance sheet without having earned anything.

The same section lists the conditions a company must meet before it capitalises profits or reserves this way:

• its articles of association must authorise it;
• the board must recommend it, and shareholders must authorise it in a general meeting;
• it must not have defaulted on interest or principal on fixed deposits or debt securities it has issued;
• it must not have defaulted on statutory employee dues such as provident fund, gratuity and bonus;
• any partly paid-up shares outstanding on the allotment date must be made fully paid-up.

And then a line that settles a common argument: bonus shares cannot be issued in lieu of dividend. A bonus is not a substitute payout under the law, whatever the marketing around it says.

A company that can’t pay its PF dues or its fixed deposit interest can’t announce a bonus. That one condition tells you more about a bonus-issuing company than the ratio does.

The record date and the T+2 timeline

The record date is the cut-off the company uses to decide who gets the bonus. If you appear as a shareholder in the depository records on that date, you are entitled. If you don’t, you aren’t.

For bonus issues announced on or after October 1, 2024, SEBI tightened the timeline sharply. Its September 16, 2024 circular sets out the steps, with the record date called T:

1. Within 5 working days of the board meeting that approves the bonus, the company applies to the stock exchange for in-principle approval.
2. When it fixes and intimates the record date (T), it also records a deemed date of allotment on T+1, the next working day.
3. The exchange notifies acceptance of the record date, the number of shares considered for the bonus and the deemed allotment date.
4. The company submits documents to the depositories for credit of the bonus shares by 12 pm on T+1.
5. The bonus shares become available for trading on T+2, the next working day after allotment.

The same circular removed the old step of crediting bonus shares into a temporary ISIN first. For bonus issues of equity shares, the new shares can be credited directly under the existing, permanent ISIN. In plain terms, the new shares look like your old shares in your demat account almost straight away, and you can sell them two working days after the record date.

One practical point. To be on the register on the record date, a purchase has to have settled into your account by then, and settlement takes time after the trade. That’s why the last day to buy and still get the bonus falls before the record date, not on it. Check the exchange notice for the exact ex-date of the issue you’re tracking, rather than counting days in your head.

A worked example: Tapti Kitchenware’s 1:1 bonus

Let’s run the numbers with a company that doesn’t exist. Tapti Kitchenware Ltd is a hypothetical listed maker of steel cookware. Every figure below is invented for illustration.

Before the bonus

• Shares outstanding: 5 crore, face value ₹10 each
• Share capital: 5 crore × ₹10 = ₹50 crore
• Reserves (free reserves plus securities premium): ₹1,200 crore
• Net worth: ₹50 crore + ₹1,200 crore = ₹1,250 crore
• Annual net profit: ₹200 crore
• Share price: ₹800
• Market capitalisation: 5 crore × ₹800 = ₹4,000 crore

The board recommends a 1:1 bonus, shareholders approve it, and the company fixes a record date.

What changes on the balance sheet

Tapti issues 5 crore new shares of ₹10 each. That’s ₹50 crore moved out of reserves and into share capital. Share capital goes from ₹50 crore to ₹100 crore. Reserves drop from ₹1,200 crore to ₹1,150 crore. Net worth? Still ₹1,250 crore. Nothing has left the company.

What changes for the shareholder

Say you held 150 shares at ₹800, worth ₹1,20,000. After the bonus you hold 300 shares. If the market values the company exactly as before, at ₹4,000 crore, the price adjusts to ₹4,000 crore ÷ 10 crore shares = ₹400. Your 300 shares × ₹400 = ₹1,20,000. Same money, double the share count.

What changes in the per-share numbers

Earnings per share before the bonus: ₹200 crore ÷ 5 crore = ₹40. After: ₹200 crore ÷ 10 crore = ₹20. The P/E ratio doesn’t budge, though: ₹800 ÷ ₹40 = 20 before, ₹400 ÷ ₹20 = 20 after. Book value per share halves too, from ₹250 to ₹125, and price-to-book stays at 3.2.

This is why historical EPS and price charts get adjusted for bonuses. If you compare Tapti’s pre-bonus EPS of ₹40 with a post-bonus quarter without adjusting, it looks like earnings halved overnight. Our explainer on EPS and how it’s calculated covers why the share count in the denominator matters so much.

What if the ratio leaves a fraction?

Suppose Tapti had announced a 1:2 bonus instead and you held 75 shares. Your entitlement is 37.5 shares. Companies can’t credit half a share, so the announcement will say how fractional entitlements are treated. Read that section if your holding is small or an odd number.

Why companies do it, and what it signals

If a bonus doesn’t create value, why bother? A few reasons come up again and again.

A lower share price. A stock at ₹400 feels more approachable to a small investor than one at ₹800, even though the value is identical. More shares in circulation can also mean more trading activity.

A statement about reserves. You can only capitalise reserves you actually have, and as we saw, not revaluation reserves. A company that converts ₹50 crore of reserves into permanent share capital is saying it doesn’t expect to need that cushion back as distributable profit.

A clean compliance record. The Section 63 conditions mean the company has not defaulted on deposit or debt payments, or on employee statutory dues. That’s a low bar, but it’s a real one.

Here’s what a bonus doesn’t do. It doesn’t raise money, it doesn’t improve margins, and it doesn’t change the company’s future cash flows. When a stock rallies hard on a bonus announcement, the market is pricing sentiment and liquidity, not a better business.

A bonus changes the number of slices, not the size of the pie. Anyone telling you otherwise is selling the announcement, not the business.

Bonus issue vs stock split vs rights issue

These three get lumped together, so it helps to separate them.

• Bonus issue: new shares come out of reserves. Face value per share stays the same, share capital rises, reserves fall, and net worth is unchanged. No money changes hands.
• Stock split: the face value itself is divided, say from ₹10 to ₹5, so each share becomes two. Share capital and reserves don’t move at all. The effect on your share count and price looks similar to a 1:1 bonus, but the accounting is different.
• Rights issue: existing shareholders are offered new shares at a price, and they pay for them. The company raises fresh money. If you don’t subscribe, your stake gets diluted. Our piece on rights issue vs IPO walks through how that works.

The rights issue is the only one of the three where your rupee value can change depending on what you do. With a bonus or a split, you don’t have to do anything at all.

What to check when a bonus is announced

• The ratio, read correctly. Is it one new share per one held, or one per two? Do the math on your actual holding.
• The source of the reserves. The board outcome or the explanatory statement to the shareholder notice usually says whether it’s free reserves or securities premium being capitalised.
• The record date and the ex-date. Take them from the exchange notice, not from a forwarded message.
• The business underneath. Look at the last few quarters of revenue, margins and cash flow. Our guide to how to analyse quarterly results is a good place to start. A bonus from a company with shrinking profits is still a company with shrinking profits.
• Derivatives positions. If the stock trades in F&O and you hold contracts, read the exchange circular on how open positions are adjusted for the bonus.
• Tax. The treatment of bonus shares when you sell them has its own rules on cost and holding period. Check with a tax professional before you sell soon after the credit.

The short version

A bonus issue of shares turns part of a company’s reserves into share capital and hands the new shares to existing holders in a fixed ratio. Under Section 63 of the Companies Act, it can only come from free reserves, securities premium or the capital redemption reserve, never from revaluation reserves, and only if the company hasn’t defaulted on deposits, debt or employee dues. Under SEBI’s 2024 timeline, allotment is deemed on the day after the record date and the shares can be traded the day after that. Your share count goes up, the price adjusts down, and your wealth stays where it was. Judge the company on its results, not on its ratio.

Disclaimer: This article is for information and education only and is not investment advice or a recommendation to buy or sell any security. Tapti Kitchenware Ltd and all share counts, prices, profits and balance sheet figures in the worked example are hypothetical. Legal conditions are from Section 63 of the Companies Act, 2013 and the bonus issue timeline is from SEBI circular CIR/CFD/PoD/2024/122 dated September 16, 2024, both linked above. Consult a SEBI-registered investment adviser before making investment decisions.