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Bonus Stripping


Posted on 11-Oct-2017 Comments  0

What is bonus Stripping?

Bonus stripping is an option available for Investors to incur short term capital loss legally to plan tax obligations.


When does this opportunity arise?

When a company announces bonus


How does it work?

Lets take the example of Bharat Forge which announced a bonus of 1:1 with September 30, 2017, as its record date. This means that anyone who buys the stock on or before 27th of September will be eligible for the bonus shares.


  1. Lets assume that A buys 1000 shares on 27th September 2017 at 1290.

  2. The stock moves ex-bonus on 28th September by when it touched a high of 615.

  3. A sells 1000 Bharat Forge at, lets assume 615, and books a short term loss of Rupees 675 per share (1290-615), ie. 6.9 lakhs on 1000 shares.

  4. A however buys 1000 shares on or after 29th September to retain it in his portfolio.


This short term loss of 690000 can be adjusted against short term capital gain while filing returns or can be carried forward to next 8 years to be adjusted against future short term capital gains. This is called bonus stripping.


What are the benefits?


  1. A gets an opportunity to book the short term capital loss that can be adjusted against short term capital gain.

  2. He also gets bonus shares of 1000 shares (as shares were sold at ex-bonus price)

  3. He also retains the original shares sold by buying them back subsequently.

October, being results season, watch out for good stocks that announce bonus to take benefit of Bonus Stripping.


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