Is bonus share tax-free in Nepal?

No. Bonus shares are taxed at 5% in Nepal — the same rate as cash dividends. Under Section 88 of the Income Tax Act 2058, bonus shares are legally a 'distribution of profit' and the issuing company must withhold 5% tax on the face-value amount. That is why most NEPSE announcements pair a bonus with a small cash dividend (e.g. 12% bonus + 0.6316% cash) — the cash portion exists specifically to fund the 5% withholding on the bonus.

Which is better for a Nepali investor — bonus shares or cash dividends?

Neither creates new wealth on its own. A bonus share is just your existing equity sliced into more pieces; a cash dividend hands you a portion of the company's retained earnings. The practical differences are: (1) bonus shares defer capital gains tax until you sell, while cash dividends are settled at 5% on payout, (2) bonus shares are auto-reinvested with no friction or cost, while cash dividends need you to actively re-buy through a broker (with broker fees and SEBON charges), and (3) cash dividends are useful if you actually need the cashflow. For long-horizon investors who would reinvest anyway, bonus shares win on friction; for income-focused investors, cash dividends win on flexibility.

How is the 5% tax on bonus shares paid in Nepal?

The company calculates 5% on the face value of the bonus shares (Rs 100 per share for most listed companies) and remits that to the Inland Revenue Department within 25 days of the month end. To fund this, companies typically announce a small cash dividend alongside the bonus — calculated as bonus% × 5/95 — so a 19% bonus comes with 1% cash dividend, and a 12% bonus comes with about 0.6316% cash. The shareholder receives the bonus shares net of tax; the cash dividend portion is consumed by the withholding.

What is the cost basis of bonus shares when I sell them in Nepal?

Brokers in Nepal use the weighted-average cost (WACC) method when computing capital gains tax through CDSC. Your original purchase price is averaged across the original shares plus the bonus shares — the bonus shares effectively reduce your per-share cost basis. Example: 100 shares bought at Rs 500 each (Rs 50,000 total), receive 10 bonus shares → new cost basis = Rs 50,000 / 110 ≈ Rs 454.55 per share. When you sell, capital gains tax (5% if held >365 days, 7.5% if ≤365 days) is computed on (sale price − Rs 454.55) × shares sold.

What is the capital gains tax rate on listed shares in Nepal?

For a resident natural person selling listed shares: 7.5% on short-term gains (held 365 days or less) and 5% on long-term gains (held more than 365 days). The tax is deducted at source by the broker through CDSC before the sale proceeds are credited to your bank — there is no separate filing for it. The holding period for bonus shares starts from the date the bonus is credited to your demat account, not from the date you bought the original shares.

Bonus Share vs Cash Dividend Nepal: Which Builds Wealth (2026)

If you have ever read a NEPSE announcement that says "Board has recommended 12% bonus + 0.6316% cash dividend" and wondered why the cash number is such an odd fraction, this post is for you.

The short answer: the 0.6316% is not a courtesy. It is the 5% tax on the bonus shares, calculated to the third decimal place. Bonus shares and cash dividends in Nepal are legally the same thing — both are taxed at 5% under Section 88 of the Income Tax Act 2058. The framing of "tax-free bonus shares" you may have heard from an agent, an Indian YouTube video, or a finance Instagram reel is wrong for Nepal.

Once you accept that bonus and cash dividends are taxed identically at the moment of distribution, the "which builds more wealth" question becomes a much narrower one — about timing, reinvestment friction, and capital gains tax deferral. That's the whole post.

The single fact most Nepali retail investors get wrong

Walk into any NEPSE chat group and you will see this claim repeated as gospel:

"Bonus share is better because there is no tax on bonus, only cash dividend has 5% tax."

This is wrong, and the Income Tax Act 2058 is very clear about why.

Section 88 requires every resident person paying a "dividend" to withhold 5% tax on the gross amount and deposit it with the Inland Revenue Department within 25 days of month-end. The Act's definition of dividend explicitly includes distributions in any form — cash, shares, or any other property. A bonus share is a distribution of retained profit in share form. The rate is the same: 5%.

The reason the myth persists is that the tax on a bonus share is not deducted from your bonus shares. You do receive the full 12 bonus shares per 100 you own. But you can see the tax in the announcement itself: it is the small cash dividend that always accompanies a bonus.

The math: if a company declares a 12% bonus, the tax owed is 5% of the face value (Rs 100) of those 12 bonus shares = Rs 60 per Rs 1,000 of original holding. To fund this, the company also declares a cash dividend of 12 × 5 / 95 = 0.6316%. That cash dividend is first consumed by the 5% withholding, which is then applied to the entire grossed-up distribution. You receive the 12 bonus shares; the cash portion vanishes into the IRD account before it reaches your bank.

You did pay 5% tax on the bonus. It was just paid out of a cash dividend you never saw.

How to read a NEPSE dividend announcement

Once you know what to look for, every announcement decodes the same way.

Announcement	Bonus %	Cash %	What's actually happening
"21% bonus only"	21	0	The cash to pay the 5% withholding has to come from somewhere — usually from the company's retained cash. Rare in practice; most boards pair it with a small cash dividend.
"20% bonus + 1.0526% cash"	20	1.0526	Pure tax-cover structure. `20 × 5/95 = 1.0526`. Shareholder net: 20% in shares, 0% in cash.
"10% bonus + 5.5263% cash"	10	5.5263	Tax cover (`10 × 5/95 = 0.5263`) plus a real 5% cash dividend on top. After the 5% withholding on cash, you receive 10% bonus shares + 4.75% net cash.
"0% bonus + 15% cash"	0	15	Pure cash dividend. After 5% withholding, you receive 14.25% net cash.
"8% bonus + 0.4211% cash"	8	0.4211	Pure tax-cover structure. `8 × 5/95 = 0.4211`. Shareholder net: 8% in shares, 0% in cash.

The rule of thumb: if the cash percentage equals bonus × 5/95 (roughly 1/19 of the bonus), the entire cash component is being consumed by tax and you are receiving a pure-bonus distribution net of tax. Anything above that is genuine cash you will see in your bank.

Worked example: Rs 1 lakh in NICL at the start of the year

Let's make this concrete. Suppose on Shrawan 1 you own 200 shares of a hypothetical commercial bank at a market price of Rs 500 each — total holding value Rs 1,00,000. The bank's AGM declares two scenarios. Both are economically identical from the company's perspective (same total payout from retained earnings).

Scenario A: 20% bonus + 1.0526% cash

Bonus shares: 200 × 20% = 40 new shares.
Cash declared: 200 × 100 (face value) × 1.0526% = Rs 210.53.
Tax withheld: 5% of 200 × 100 × (20% + 1.0526%) = 5% of Rs 4,210.53 ≈ Rs 210.53.
Net cash to your bank: ≈ Rs 0.
Net shares received: 40.
New holding: 240 shares. After the bonus, the market typically adjusts ex-bonus, so the price drops to roughly Rs 500 × 200 / 240 ≈ Rs 416.67.
New holding value (immediately after): 240 × Rs 416.67 ≈ Rs 1,00,000. Same as before.

Scenario B: 0% bonus + 20% cash

Cash declared: 200 × 100 × 20% = Rs 4,000.
Tax withheld: 5% of Rs 4,000 = Rs 200.
Net cash to your bank: Rs 3,800.
Net shares: 200 (unchanged).
New holding (immediately after): 200 × (Rs 500 − Rs 20 ex-dividend) = 200 × Rs 480 = Rs 96,000.
Total wealth: Rs 96,000 + Rs 3,800 cash = Rs 99,800.

Notice the Rs 200 shortfall in Scenario B vs Scenario A: that is the same Rs 200 of tax. It exists in both scenarios; in Scenario A it was paid out of the tax-cover cash dividend you never saw, and in Scenario B it was visible because the cash was visible.

Net of tax, both scenarios leave you with effectively the same wealth. Bonus does not create wealth. Cash does not destroy it. The tax is identical.

So where does the actual difference come from?

Three places. Only one of them is large enough to matter for most retail investors.

1. Capital gains tax deferral (the real advantage of bonus)

You don't pay capital gains tax until you sell. With a bonus share, the company has handed you a tax-paid distribution in share form and you can hold it indefinitely. The 5% (or 7.5%) capital gains tax on the appreciation is deferred — possibly for years, possibly forever if you hold past your lifetime.

With a cash dividend, you have already paid the 5% withholding and you have cash. If you re-invest that cash by buying back the same shares, you are starting a new holding period for the new shares — short-term (≤365 days) gains on those will be taxed at 7.5%, not 5%. You also pay broker commission and SEBON fees on the new buy.

For a long-horizon, buy-and-hold investor, the bonus's capital gains deferral is real money. Quantifying it: if a stock appreciates 15% per year and the bonus shares stay invested for 10 years, the deferred 5% CGT compounds inside the position rather than being paid annually as part of dividend re-investment friction. That is roughly a 30–50 bps annual tailwind to long-term returns.

2. Reinvestment friction (smaller but real)

A cash dividend that you intend to reinvest costs you:

Broker commission (typically 0.27–0.55% of transaction value, SEBON-published slabs).
SEBON regulatory fee (0.015%).
DP charge (Rs 25 per script per transaction).
Time and friction — you have to actually log into the broker, place the order, and have the funds in your TMS account.

For small dividends (Rs 500–2,000), the DP charge alone is 1.25–5% of the dividend, which is brutal. Most retail investors with small holdings don't reinvest small cash dividends — they consume them. Bonus shares bypass this entire problem.

3. Optionality (the underrated advantage of cash)

Cash dividends give you choice:

Spend — if you actually live off your portfolio.
Reinvest in the same stock — same as a bonus, with the friction above.
Rebalance — buy a different stock, an FD, a mutual fund, gold. This is the move bonus shares cannot make. If your NICL position is up 80% and your portfolio is now over-weighted in financials, a cash dividend lets you redirect that capital to a sector you are underweight in.

A retired investor or a rebalancing-focused investor genuinely values cash. A 25-year-old in their first SIP year does not.

What about the cost basis when you finally sell the bonus shares?

This is where most retail investors trip up. The honest answer: in Nepal, brokers and CDSC use the weighted average cost (WACC) method when computing capital gains tax at the time of sale.

A worked example:

You buy 100 shares at Rs 500 each. Total cost: Rs 50,000.
Company declares a 10% bonus. You receive 10 bonus shares.
You now hold 110 shares for the same Rs 50,000 total cost.
New cost basis per share: Rs 50,000 / 110 ≈ Rs 454.55.

When you sell, the broker computes capital gains tax on (sale price − Rs 454.55) × shares sold, deducted at source via CDSC.

The catch: the holding period for bonus shares starts from the date the bonus is credited to your demat, not from the original purchase date. So if you bought your original shares 18 months ago and received bonus shares last month, selling everything today means:

100 shares (original): held >365 days → 5% long-term CGT.
10 shares (bonus): held ≤365 days → 7.5% short-term CGT.

The broker handles the split automatically. You see the net amount in your bank.

This is why some long-term investors deliberately wait one year after the bonus credit before selling — to convert the bonus shares' CGT rate from 7.5% to 5%.

A clean framework for deciding which you prefer

Two questions, in this order:

Question 1: Would I reinvest the cash dividend in the same stock anyway?

Yes → Bonus shares are slightly better. Same economics, zero friction, capital gains tax deferred. You save the broker commission, the DP charge, and the time. The capital gains deferral is the real prize.
No, I'd consume or redirect it → Cash dividends are clearly better. The optionality is real and a bonus share gives you nothing if you would have wanted cash.

Question 2: How long is my holding horizon?

>5 years (genuine buy-and-hold) → Bonus's CGT deferral compounds. Lean bonus.
Under 2 years (active or rebalancing) → CGT deferral barely matters. Lean cash for the optionality.

A practical heuristic for most working-age Nepali investors with a 10–30 year horizon: bonus shares are slightly better than cash dividends, but the difference is in the realm of 30–80 bps per year, not the 2–4× story that NEPSE chat groups make it out to be.

The far larger lever is whether the underlying company is good. A bad company paying generous bonuses is still a bad investment. A great company paying modest cash dividends is still a great investment.

What this looks like in your portfolio tracking

Two practical setup notes for Kharchapatra or any other tracker:

Don't log bonus shares as income. They are not. They are an adjustment to your existing holding's share count and cost basis. Logging them as income inflates your portfolio "yield" and hides the fact that the per-share value dropped ex-bonus by exactly the offsetting amount.
Do log net cash dividends as income — under a category like Investment Income — Dividend. This is your real cash yield. Year-end, this is also useful when reconciling against your share register: total cash dividends received should match (declared cash %) × face value × shares × 95% for each holding.

The bonus credit and ex-bonus price drop will show up automatically in your broker statement and your CDSC view. There is nothing to log.

Two related reads

NEPSE vs SIP vs FD at 25 in Kathmandu — where dividends sit in the broader Nepali investing landscape.
Reading a Nepali mutual fund factsheet — mutual funds also distribute bonus units and cash; same tax mechanics apply.

This post is part of the investing section of the Nepal Money Basics guide.

If a specific company's dividend announcement is confusing — especially the multi-line "X% bonus + Y% cash + Z% stock split" structures from commercial banks — write to parjanya57@gmail.com with the announcement and I will walk through the math.