The government has proposed to levy a 10 percent withholding tax on bonus shares issued by companies to their shareholders, according to the budget document for 2023-24.

The document states that every company, whether listed or non-listed, shall withhold 10 percent of the bonus shares in order to collect tax revenue on dividends. The value of the bonus shares shall be determined on the basis of the day-end price on the first day of closure of books in the case of listed companies and the value as prescribed in case of other companies.

The document further states that a company shall only issue the bonus shares to a shareholder if the shareholder pays a tax equal to 10 percent of the value of the bonus shares, including the bonus share withheld. A company shall be entitled to collect and recover the tax deposited from the shareholder before issuing the bonus shares.

If a shareholder fails to pay the tax or collect the bonus shares within fifteen days of the date of issuance, the company may dispose of the bonus shares and pay the proceeds to the government.

The document also states that the issuance of bonus shares shall be deemed to be the income of the shareholder and the tax paid under this section shall be treated as final tax on that income.

The government has taken this step to encourage payments on bonus shares and enhance tax collection from dividends. The government expects that this measure will generate additional revenue of Rs. 15 billion in FY24.