Bonus Share Tax in Nepal:
How Much Tax Do You Pay?
A complete, plain-language guide to the 5% withholding tax, capital gains tax rates, and how bonus share tax works on NEPSE.
⚡ Quick Answer
In Nepal, bonus shares are treated as dividend income under the Income Tax Act 2058. When a company issues bonus shares, a 5% withholding tax (TDS) applies — but since no cash is distributed, shareholders must deposit this tax themselves before receiving the shares. When you later sell those bonus shares on NEPSE, capital gains tax of 5% (held >365 days) or 7.5% (held ≤365 days) applies on the full sale price, because the cost basis of bonus shares is zero.
๐ Table of Contents
- What Are Bonus Shares in Nepal?
- Tax Rates at a Glance
- The 5% Withholding Tax on Bonus Shares
- Capital Gains Tax When You Sell Bonus Shares
- Why the Cost Basis of Bonus Shares is Zero
- Worked Examples (Step-by-Step)
- How and When to Pay the Tax
- Bonus Share vs Cash Dividend Tax Comparison
- Frequently Asked Questions
Bonus shares (เคฌोเคจเคธ เคธेเคฏเคฐ) are additional shares issued free of charge to existing shareholders in proportion to their current holdings. Instead of distributing profits as cash, a company converts its retained earnings or free reserves into share capital and hands shareholders a proportional number of new shares.
For example, if a company declares a 20% bonus, you receive 20 new shares for every 100 shares you already own — completely free. Your ownership percentage stays the same, but you hold more shares, and the share price adjusts downward proportionally on NEPSE's ex-date.
Legal basis: Bonus shares in Nepal are governed by Section 179 of the Companies Act 2063 and classified as dividend income under Section 88 of the Income Tax Act 2058. A company must pass a special resolution at the AGM/EGM before issuing them.
There are two separate tax events for bonus shares — one when you receive them, and one when you sell them:
| Tax Event | Rate | Who Deducts / Pays | When |
|---|---|---|---|
| Withholding Tax (WHT) on bonus share receipt | 5% | Shareholder deposits to company bank account | Before shares credited to DEMAT |
| Capital Gains Tax — Long-term | 5% | Broker deducts at source (TDS) | At sale — held >365 days |
| Capital Gains Tax — Short-term | 7.5% | Broker deducts at source (TDS) | At sale — held ≤365 days |
| CGT — Unlisted Shares | 10% | Taxpayer / buyer | At sale |
Under the Income Tax Act 2058, bonus shares are legally classified as dividend. The current withholding tax (TDS) rate on dividends — including bonus shares — is 5% for both resident and non-resident individuals.
This is the unique and often confusing aspect of bonus share taxation in Nepal. Since the company issues shares instead of cash, there is no cash flow from which to deduct tax. The Income Tax Act resolves this by grossing up the bonus share amount: the declared net bonus is treated as 95% of the gross, and the 5% difference is the WHT shareholders must deposit.
Gross-up example: A company declares a net bonus of NPR 500,000. The gross amount = NPR 500,000 ÷ 0.95 = NPR 526,316. The WHT = NPR 526,316 × 5% = NPR 26,316. Shareholders pay NPR 26,316 in tax; NPR 500,000 is capitalized as new share capital.
The company issues a public notice instructing shareholders to deposit the 5% WHT into a designated bank account before the shares are credited to their DEMAT accounts. This is Nepal's standard practice because no cash is distributed to deduct from.
The second tax event occurs when you sell your bonus shares on NEPSE. Capital gains tax (CGT) applies on the profit from selling — and for bonus shares, the entire sale price is the profit because your cost of acquisition is zero.
| Holding Period | Share Type | CGT Rate | Calculated On |
|---|---|---|---|
| More than 365 days | Listed on NEPSE | 5% | Full sale price (cost = 0) |
| 365 days or less | Listed on NEPSE | 7.5% | Full sale price (cost = 0) |
| Any period | Unlisted shares | 10% | Gain over cost basis |
Good news: For NEPSE-listed shares, your broker automatically deducts CGT at source during settlement. You don't need to pay it separately — though you should report capital gains in your annual income tax return filed with the IRD by the end of Ashoj (mid-October).
Since you received bonus shares for free, your acquisition cost is NPR 0. When you sell them at market price — say NPR 400 per share — your entire capital gain equals the full sale price of NPR 400. This is very different from shares you bought at NPR 100 and sold at NPR 400, where only the NPR 300 gain is taxed.
Important for WACC holders: On NEPSE, the Weighted Average Cost of Capital (WACC) method is used when you hold a mix of purchased and bonus shares. When bonus shares are added, your blended average cost per share drops — increasing your taxable gain when you eventually sell any shares from that holding.
Company declares 10% bonus on 1,000 shares held
Selling 100 bonus shares after 14 months at NPR 350
Selling same 100 bonus shares within 8 months at NPR 350
Tax saving tip: Holding your bonus shares for more than 365 days saves you 2.5% in CGT. On a sale of NPR 35,000, that's NPR 875 saved. On large holdings, this difference is significant — plan your sell dates accordingly.
Company Issues a Public Notice
After the AGM approves the bonus share issuance, the company publishes a notice on Sharesansar, MeroShare, or newspapers specifying the deadline and the bank account where you must deposit the 5% WHT.
Calculate Your Tax Amount
Your WHT = (Your bonus shares × NPR 100 face value) ÷ 0.95 × 5%. Use the company's published figures or calculate based on your kitta count and the bonus percentage.
Deposit the Tax Before the Deadline
Visit the specified bank branch or use online banking to deposit your WHT. Keep the voucher — the reference number (usually your BOID) links your payment to your DEMAT account.
Bonus Shares Credited to Your DEMAT
Once the company confirms your tax payment, the bonus shares appear in your MeroShare DEMAT account — typically within a few weeks of the tax deposit deadline.
CGT Is Deducted Automatically at Sale
When you sell on NEPSE, your broker deducts 5% or 7.5% CGT automatically during settlement. You receive the net amount. Report it in your annual IRD return by end of Ashoj (mid-October).
Many investors wonder whether bonus shares or cash dividends are more tax-efficient. Here's a side-by-side breakdown:
๐ Bonus Shares
- 5% WHT at issuance (paid by shareholder)
- CGT of 5% or 7.5% applies at sale
- Cost basis is zero — full sale price is taxed
- Tax on sale is deferred until you sell
- Share price adjusts downward on ex-date
๐ต Cash Dividend
- 5% WHT deducted at source — no action needed
- WHT is a final tax — no CGT on the dividend
- NPR 25,000/year exempt for individuals (NEPSE-listed)
- Cash deposited directly to your bank account
- No holding period consideration
Bottom line: With cash dividends, the 5% WHT is your final tax. With bonus shares, you pay 5% WHT now AND 5–7.5% CGT when you sell. The total lifetime tax on bonus shares is therefore higher — but the tax on the CGT portion is deferred until you choose to sell, giving you more flexibility.
Q Do I have to pay tax when I receive bonus shares in Nepal?
Yes. Bonus shares are classified as dividend under the Income Tax Act 2058, so a 5% withholding tax applies at issuance. Since no cash is distributed, you must deposit this tax yourself into the company's designated bank account before the shares are credited to your DEMAT.
Q What happens if I don't pay the 5% WHT on bonus shares?
If you miss the deadline or fail to pay, the company will not credit the bonus shares to your DEMAT account. Always check the company notice carefully for the exact deadline and payment instructions.
Q Is there capital gains tax on bonus shares in Nepal?
Yes — when you sell them. The CGT rate is 5% for shares held more than 365 days, or 7.5% for shares held 365 days or less. CGT applies on the full sale price because bonus shares have a zero cost basis. Your broker deducts it automatically at settlement on NEPSE.
Q How is capital gains tax calculated on bonus shares?
Since bonus shares are received for free, your acquisition cost is NPR 0. So: Capital Gain = Sale Price − 0 = Full Sale Price. If you sell 50 bonus shares at NPR 500 each (NPR 25,000 total), you owe 5% of NPR 25,000 = NPR 1,250 in long-term CGT.
Q What is the dividend tax exemption limit in Nepal?
Resident individuals enjoy an exemption of up to NPR 25,000 per year on dividends received from companies listed on NEPSE. Amounts above this threshold are subject to the standard 5% withholding tax.
Q Do I need to file an income tax return for bonus share taxes?
The 5% WHT is a final tax, and CGT on NEPSE shares is deducted at source by your broker. However, you should still report capital gains in your annual income tax return filed with the IRD by the end of Ashoj (mid-October) if your total income requires filing.
Q Is the bonus share tax rate different for insurance companies?
The statutory rate is the same 5% WHT for all companies, including insurance companies. Some company notices may quote an effective rate appearing higher (like ~18%) — this reflects the gross-up calculation for shares issued from specific reserves, not a different tax rate.
Q Can I reduce my capital gains tax on bonus shares?
You cannot avoid CGT legally, but you can minimize it by holding bonus shares for more than 365 days to qualify for the 5% long-term rate instead of the 7.5% short-term rate. Timing your sales strategically can make a meaningful difference on large holdings.
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