Somewhere in your portfolio is a stock that issued bonus shares, or split, or demerged a subsidiary you now own without ever buying. When you sell, your capital gain won't be "sale price minus what I paid" — because each of those events rewrote your cost basis under a specific statutory rule, whether you noticed or not.
Note: the cost-basis rules below were carried into the Income-tax Act 2025 unchanged. Section numbers cited (49(2C), 48, 112A) are the 1961-Act numbers still used in most working papers; the 2025 Act renumbered them.
Inside your broker's app, this mostly looks fine — the platform adjusts its own numbers. The problem starts the moment you track your portfolio outside it: a spreadsheet, two or three brokers consolidated, a computation in your own currency, a tax working. Now every corporate action is something you have to catch and apply by hand — and if you miss even one, every number downstream of it is silently wrong, and the only fix is to tear the sheet up and rebuild from the first trade. Here is the rule for each event, with the math, so your own numbers survive contact with the tax return.
Bonus shares: your cost is zero, and that's a trap
The rule: Bonus shares have a cost of acquisition of nil, and their holding period starts on the allotment date — not when you bought the original shares. The original shares keep their full original cost.
The math — and the asymmetry nobody expects:
You bought 100 shares at ₹1,000 (cost ₹1,00,000). The company issues a 1:1 bonus. You now hold 200 shares, and the price roughly halves to ₹700 over time. You sell everything at ₹700:
| Lot | Sale value | Cost | Gain/loss |
|---|---|---|---|
| Original 100 shares | ₹70,000 | ₹1,00,000 | −₹30,000 |
| Bonus 100 shares | ₹70,000 | ₹0 | +₹70,000 |
| Economic reality | ₹1,40,000 | ₹1,00,000 | +₹40,000 |
Your true gain is ₹40,000 — but for tax you report a ₹30,000 loss on one lot and a ₹70,000 gain on another, and the two lots can sit in different tax buckets: if you sell within a year of the bonus allotment, the bonus lot's ₹70,000 is short-term (taxed higher) while the original lot's loss may be long-term (restricted set-off). Selling "the same stock on the same day" can produce two different tax treatments. This asymmetry is also why "bonus stripping" rules exist for funds — the department has seen every version of this movie.
Check before selling around a bonus: which lots is your broker treating as sold (FIFO applies per demat), and has a year passed since allotment?
Splits: cost divides, holding period doesn't
The rule: In a split (say 1:5, face value ₹10 → ₹2), your total cost stays identical and spreads across the new share count. The holding period of the original purchase continues — a split never resets your long-term clock.
100 shares at ₹1,000 → 500 shares at ₹200 cost each. Nothing taxable happens at the split.
The practical trap is clerical, not legal: after a split, the stock often shows up in records as a different security — new identifier, new price series. Inside your broker's app that's handled quietly. In your own spreadsheet, the old holding seems to vanish and an unfamiliar one appears, and every quantity and per-share cost you'd entered is now wrong until you find the event and restate the lot. If a multi-year tracker ever shows you "selling" a stock you never sold — look for a split first.
Demergers: your cost splits by a ratio you've never seen
The rule: When a company demerges, your original cost is apportioned between the parent and the new company in the ratio of net book value transferred — a percentage that appears in the scheme of arrangement and the company's investor communication, not on your contract note. The holding period of the demerged company's shares includes the period you held the parent. Receiving the new shares is not a taxable event.
The math:
You hold 100 shares of ParentCo bought at ₹900 (cost ₹90,000). ParentCo demerges NewCo, and the scheme states 30% of net book value moved to NewCo. You receive 50 NewCo shares (1 for every 2 held):
| Shares | Total cost | Per-share cost | |
|---|---|---|---|
| ParentCo (after) | 100 | ₹63,000 (70%) | ₹630 |
| NewCo | 50 | ₹27,000 (30%) | ₹540 |
Every future sale of either company uses these rewritten numbers. And here's the DIY problem: NewCo lands in your records as 50 shares you never bought, with no purchase price attached. Track it as "cost = zero" and you'll overpay tax on ₹27,000 of phantom gain when you sell; forget to reduce ParentCo's cost and you'll understate that gain — a mismatch that surfaces in scrutiny, since the AIS shows the corporate action either way. One demerger, two entries to fix, and both have to be right.
Where to find the ratio: the company's cost-apportionment circular (most issue one precisely for Section 49(2C) purposes), the scheme document, or exchange filings around the record date.
Mergers: your cost travels to a different company
The rule: When your company merges into another and you receive shares per the swap ratio, the swap itself is not a taxable transfer (for schemes meeting the statutory conditions). Your original cost carries over to the new shares, and your holding period includes the time you held the old company.
Held 200 shares of TargetCo at a cost of ₹80,000; swap ratio 1:4 gives you 50 shares of AcquirerCo. Those 50 shares now carry the full ₹80,000 cost (₹1,600/share) and your original purchase dates. You may hold a stock "bought" — per your broker — on the merger date, that is genuinely long-term from years earlier. Composite schemes (merger + demerger in one) stack both rule sets; work lot by lot.
Rights issues: the one that behaves normally
Cost = what you actually paid in the rights subscription; holding period from allotment. The only subtlety: if you sold your rights entitlement instead of subscribing, that sale price is a capital gain with zero cost (short-term, from the entitlement's arising). Renounced-rights proceeds landing as "misc credit" in bank statements and never reaching the tax return is a small classic.
Buybacks: the rule depends on the date — check which regime you sold under
Buyback taxation has changed twice recently, so the only durable way to state it is as a dated table:
| Buyback completed | Taxation in your hands |
|---|---|
| Up to 30 Sep 2024 | Exempt for you — the company paid buyback tax |
| 1 Oct 2024 – 31 Mar 2026 | Entire proceeds taxed as dividend at your slab/treaty rate; your cost of those shares becomes a capital loss (consideration deemed nil) usable against other gains |
| From 1 Apr 2026 | Back to capital gains: proceeds minus cost, LTCG/STCG as usual (promoters face an additional levy) |
If you tendered shares in FY 2025-26, you're in the middle row — expect the proceeds in your AIS as dividend, claim the capital loss deliberately, and NRIs should check their treaty's dividend article for the rate.
The NRI layer: every event above also has a currency consequence
Everything above is how India computes your cost basis — which is what your Indian filing runs on. For an NRI there's a second layer: each corporate action rewrites not just the INR cost but the foreign-currency cost basis and its dates.
- Bonus shares have zero INR cost — and zero foreign-currency cost, with the FX clock starting at allotment.
- Demerged shares inherit a cost derived from money you converted years earlier, at that year's exchange rate.
- A narrow forex relief exists, but probably not for you: the first proviso to Section 48 lets non-residents compute gains in the original foreign currency — but it covers only shares and debentures of Indian companies bought with foreign funds, excludes mutual fund units, doesn't help NRO-funded purchases (no foreign currency was used), and is switched off for the most common case of all: on-market, STT-paid listed equity LTCG under Section 112A. In practice it matters for unlisted shares and off-market transfers funded from abroad — for everything else, India taxes the INR gain.
- Your residence country is a separate question — and not one to guess at. The cost bases above are what Indian law says, and for your Indian filing that's the answer. Whether the country you live in treats an Indian demerger the same way — as a neutral cost-basis split rather than something taxable in the year you received the shares — depends on that country's own reorganisation rules and whether an Indian scheme qualifies under them. Some do treat it as neutral; the point is you can't assume it either way from the Indian side. If the gain is also taxable where you live, that's the one part of this worth taking to a local adviser rather than reasoning out yourself.
Why tracking this yourself is harder than it looks
If you maintain your own portfolio sheet — and almost every serious investor with more than one broker does — each of these events is a manual intervention: find the announcement, find the ratio, restate the lots, carry the new numbers forward. Miss one bonus from 2021 and every gain computed on that stock since is wrong. Worse, the errors don't announce themselves — the sheet keeps producing confident numbers until a sale, a tax filing, or an AIS mismatch exposes them, and at that point there's no patching: you're rebuilding the position from the first trade.
The 10-minute check before you sell anything: pull the corporate-action history for the stock (your broker's app or the AIS shows the events), recompute the lot's cost with the rules above — especially demerger ratios and bonus allotment dates — and compare it to what your own tracker says. If they differ, fix the tracker before the sale creates a tax fact.
Where Paisaverse fits
This is exactly the maintenance burden Paisaverse exists to remove. We track every bonus, split, demerger and merger — the ratios, the record dates, the apportionment percentages from the scheme documents — and apply them to your tradebook automatically, following the Indian cost-basis rules above, with the same holdings also shown in your own currency at the correct historical exchange rates. Nothing to catch, nothing to restate, and never a rebuild from the first trade.
To be clear about the boundary: today that gives you the India-side position and a currency view you can actually read. What your country of residence does with the same event is its own law's question — and extending into residence-country reporting, so the same holdings come out in a form that fits your local filing too, is the direction we're building in. Either way, you'll be answering that question from a clean, event-adjusted history instead of a spreadsheet you're no longer sure about.
General information, not tax advice. Scheme-specific ratios and conditions vary — verify against the company's official communication and confirm positions with a professional.
