Mastering Corporate Actions 2026: Your Comprehensive Guide to Dividends, Bonuses, and the New Buyback Tax Regime

Introduction

Corporate actions are among the most misunderstood yet impactful events in the lifecycle of a stock market investment. From HDFC Bank's historic 1:1 bonus issue in August 2025 to Infosys' ₹18,000 crore buyback and TCS's ₹57 per share dividend in January 2026, these events significantly impact your portfolio—whether you understand them or not.

For the Indian retail investor, a lack of clarity regarding ex-dates or the false assumption that bonus shares represent "free money" can lead to costly mistakes. With India’s transition to a T+1 settlement cycle and the revolutionary changes to buyback taxation introduced in Budget 2026, the rules of the game have fundamentally changed.

This guide provides an exhaustive breakdown of corporate actions, cutting through technical jargon to help salaried professionals and active traders alike protect and grow their wealth in the modern Indian market landscape.

Section 1: The Five Major Corporate Actions Every Investor Must Know

1.1 Dividends: Direct Cash Rewards from Company Profits

Dividends represent a portion of a company's earnings distributed directly to its shareholders. They are the most common way for mature companies to reward loyal investors. For example, when TCS declared a combined dividend of ₹57 per share in January 2026 (₹11 interim + ₹46 special), it rewarded lakhs of shareholders who were listed as beneficial owners on the record date of 17th January 2026.

Types of Dividends:

• Interim Dividend: Declared between two Annual General Meetings (AGMs), often following quarterly results. Companies like Infosys and NTPC are regular practitioners of this.
• Final Dividend: Proposed by the board and approved by shareholders during the AGM after the annual results are finalized.
• Special Dividend: A one-time payout usually triggered by exceptional events, such as the sale of an asset or windfall profits. The TCS ₹46 special dividend is a prime 2026 example.

Tax Implications (Post-2020 Rules):
Since the abolition of the Dividend Distribution Tax (DDT) in the Finance Act 2020, dividends are taxable in the hands of the investor:

• Dividends are added to your total income and taxed at your applicable slab rate (5%, 10%, 20%, or 30%).
• A 10% TDS (Tax Deducted at Source) is applied if your annual dividend from a single company exceeds ₹5,000.
• Investors whose total income is below the taxable limit can avoid TDS by submitting Form 15G/15H.

1.2 Bonus Shares: Capitalizing Reserves

Bonus shares are additional shares issued to existing shareholders for free. This is done by capitalizing the company's free reserves. In August 2025, HDFC Bank announced a 1:1 bonus, meaning shareholders received one free share for every share they held.

The Value Neutrality Principle:
It is vital to understand that bonus shares are value-neutral on day one. If you own 100 shares of HDFC Bank at ₹1,800 (Total value ₹1,80,000), after a 1:1 bonus, you will own 200 shares valued at ₹900 each. Your total wealth remains ₹1,80,000.

Why do companies do this?

1. Liquidity: A lower share price attracts more retail participants.
2. Health Signal: Issuing bonuses indicates the company has massive free reserves and confidence in future growth.
3. Future Dividends: Since dividends are paid per share, you will eventually receive higher total payouts on your expanded share count.

Tax Treatment:

• Receipt: No tax is payable when you receive bonus shares.
• Sale: The cost of acquisition for bonus shares is treated as ₹0. The holding period starts from the date of allotment. Sales are subject to 12.5% LTCG (if held >12 months) or 20% STCG (if held <12 months).

1.3 Stock Splits: Dividing the Unit

A stock split subdivides a company's existing shares by reducing the face value. If a company with a ₹10 face value announces a 1:2 split, each share becomes two shares with a ₹5 face value.

1.4 Rights Issues: The Opportunity to Maintain Ownership

A rights issue allows existing shareholders to buy additional shares at a discount (usually 10-30% below market price). For example, if Company ABC (trading at ₹500) announces a 1:4 rights issue at ₹400, an owner of 1,000 shares can buy 250 more for ₹1,00,000.

Your Three Choices:

1. Subscribe: Pay the discounted price and increase your holdings.
2. Renounce: Sell your Rights Entitlements (REs) on the exchange during the trading window.
3. Lapse: Do nothing. This is the worst option, as your ownership is diluted without compensation.

Theoretical Ex-Rights Price (TERP):
TERP = [ (Market Price × Existing Shares) + (Issue Price × New Shares) ] ÷ Total Shares.
In the example above: [(500 × 1,000) + (400 × 250)] ÷ 1,250 = ₹480.

SEBI's 23-Day Framework (Effective April 2025):
SEBI has streamlined the process to reduce market risk:

• T+1: Filing draft offer.
• T+9: Credit of REs to demat accounts.
• T+14: RE trading begins.
• T+23: Allotment completed.

1.5 Buybacks: Returning Capital Efficiently

A buyback occurs when a company repurchases its own shares, often at a premium. In 2025, Infosys conducted an ₹18,000 crore buyback at ₹1,800 (a 20-24% premium over the then-market price).

Budget 2026: The Revolutionary Tax Shift

• Old System (2024-25): Buybacks were treated as "deemed dividends" and taxed at your income slab rate (up to 30%+).
• New System (Effective 1 April 2026): Buyback proceeds are now taxed as Capital Gains.
  • LTCG (>12 months): 12.5% (with a ₹1.25 lakh annual exemption).
  • STCG (<12 months): 20%.
• Promoter Rule: Promoters holding >10% face higher effective rates (30% for individuals) to prevent tax arbitrage.

Section 2: Mastering Critical Dates in India's T+1 Era

With India's shift to T+1 settlement in January 2023, the timeline for corporate actions has been compressed.

2.1 The Four Critical Dates

1. Declaration Date: When the board approves the action. Under SEBI Regulation 30, this must be disclosed within 30 minutes.
2. Record Date: The day the company checks its register for eligibility.
3. Ex-Date: The day the stock starts trading without the benefit. Due to T+1, the Ex-Date and Record Date are now typically the same.
4. Payment Date: When the cash or shares actually arrive in your account.

The Golden Rule:
To be eligible for a corporate action, you must buy shares at least ONE trading day BEFORE the ex-date. For NTPC’s 6th February 2026 ex-date, the last day to buy was 5th February 2026.

Section 3: Tax Deep Dive—Optimizing Your Returns

3.1 FIFO and Bonus Shares

When selling shares, the First In First Out (FIFO) method is mandatory. Original shares are considered sold before bonus shares. Because bonus shares have a ₹0 cost of acquisition, selling them too early (within 12 months of allotment) triggers a 20% STCG tax.

3.2 Rights Entitlement Taxation

If you sell your Rights Entitlements (REs) in the market, the entire proceeds are treated as Short-Term Capital Gains (STCG) and taxed at 20%, as the cost of acquisition for the RE itself is ₹0.

Section 4: Real-World Case Studies (2024–2026)

Case Study: HDFC Bank's 1:1 Bonus (August 2025)

Following its merger with HDFC Ltd, the bank used its massive reserves to issue its first-ever bonus.

• Pre-announcement: ~₹1,750.
• Ex-date: Opened at ~₹900.
  While the value was neutral, the lower price point attracted a wider retail base and signaled management's long-term confidence.

Case Study: Infosys Buyback & Budget 2026 Benefit

Under the Budget 2026 rules, a retail investor tendering shares bought at ₹1,200 into the ₹1,800 buyback would pay only 12.5% on the ₹600 gain. Under the old system, the entire ₹1,800 would have been taxed at slab rates (e.g., 30%), resulting in a massive 267% improvement in post-tax gains for high-income earners.

Section 5: Common Pitfalls and How to Avoid Them

1. Buying on the Ex-Date: You will NOT receive the benefit. Always buy one day prior.
2. The Bonus Wealth Illusion: Do not assume you have doubled your money on the day of a bonus. The price will adjust downward.
3. Lapsing Rights: This is essentially throwing away the discount. If you don't want the shares, sell the REs.
4. TDS Surprises: Budget for the extra tax liability on dividends if you are in the 30% bracket, as the 10% TDS is only a partial payment.

Section 6: Action Steps for Investors

• Tracking: Use the NSE/BSE Corporate Actions pages weekly. Set calendar alerts two days before any ex-date.
• Metrics: Check the Dividend Payout Ratio (Healthy: 30-60%) and Dividend Coverage Ratio (>1.5x) before investing for income.
• Buybacks: Calculate the Premium to Market Price. Anything >15% is typically attractive for tendering.

Section 7: Advanced Concepts

7.1 Impact on Derivatives (F&O)

Exchanges adjust strike prices and lot sizes for bonuses and splits to ensure contract value continuity. For example, a 1:1 bonus on HDFC Bank would double the lot size from 550 to 1,100 and halve the strike price.

7.2 Margin Trading (MTF)

If you hold shares on margin, you must usually convert to delivery (pay the full amount) before an ex-date to receive bonus shares or rights entitlements.

Key Takeaways

• T+1 Timing: Buy at least one day before the ex-date to ensure eligibility for any benefit.
• Buyback Tax Win: The shift to capital gains tax in Budget 2026 is a major benefit for retail investors, reducing the tax burden on buyback premiums.
• Value Neutrality: Bonuses and splits do not increase your portfolio value instantly; they are strategic moves for liquidity and signaling.
• Rights Issues: Calculate the TERP to decide if the discount is worth the additional capital outlay.
• Tax Planning: Always track allotment dates for bonus shares to ensure you meet the 12-month threshold for 12.5% LTCG.

What This Means for Investors

In the current market, corporate actions are used by India's blue-chip giants (Reliance, TCS, HDFC Bank) to manage their capital structures and maintain retail interest. While the mechanical adjustments (price drops) are automated, the tax and strategy decisions remain with the investor.

Historically, companies that consistently reward shareholders through sustainable dividends and bonuses tend to show strong governance and fundamental health. However, investors must look beyond the "headline" benefit and analyze the company's free cash flow and reserves. As the Indian market becomes more digital and settlement cycles shorten, staying informed via SEBI disclosures and NSE filings is the only way to ensure you don't leave money on the table.