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Glossary

Cost of Acquisition

Cost of acquisition is what you're treated as having paid for an asset for capital gains tax purposes; for bonus shares, it's treated as Nil.

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What It Means

Cost of acquisition is the amount you're treated as having paid for an asset, used to calculate your capital gain when you sell it. For bonus shares specifically, Section 55(2)(aa)(iiia) of the Income Tax Act treats this cost as Nil, since you didn't actually pay anything for them.

Example

Say an investor bought 100 shares at ₹500 each and later received a 1:1 bonus, giving them 100 more shares with a cost of acquisition of ₹0. If they sell all 200 shares later, the gain on the original 100 is calculated against the ₹500 cost, while the entire sale value of the bonus 100 counts as gain, since their cost of acquisition is Nil.

Warning

The original shares and the bonus shares don't share one average cost. Each block keeps its own cost of acquisition and its own holding period, and both need to be tracked separately when filing capital gains.

More Terms

Future Value (FV)

Investment Corpus

Compounding

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