Right shares are shares issued to its existing shareholders by a company which opts not to approach the public for raising its required capital and instead chooses to do so from its existing shareholders.
The tax implications of right shares are the same as in the case of any other shares which an investor may acquire.
Thus the dividends received on rights shares are tax free in the hands of an investor.
Hence, in addition to the benefit that an investor typically gets rights shares at a price lower than the market price, regular dividends received from them are also currently not taxable.
However, when these shares are sold in the market they attract tax either as short-term or long-term capital gains depending on the holding period from the date of allotment of the rights shares to the date of their sale.
Tax implications of bonus issue ...
Image: A prospective investor leafs through subscription forms of companies coming out with share offers displayed outside the Bombay Stock Exchange. | Photograph: Indranil Mukherjee/AFP/Getty Images
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