As issuing bonus shares to the existing shareholders are given from the profits or reserves of the company, issuing of bonus shares is also known as capitalisation of reserves. After the bonus issue, theoretically, the stock price gets adjusted in the ratio of bonus shares to existing equity shares. The balance of reserves after the bonus issue should work out to be 40% of the post issue capital. Tax ImplicationUnder the Indian Income Tax Act, the cost of the bonus shares is considered as zero. Whether it is considered as short-term capital gains or long-term capital gains shall depend on the tenure for which the Bonus shares have been held.

Source: The Herald October 11, 2020 20:15 UTC