Section 236Z requires companies to withhold 10% of bonus shares and deposit the applicable tax within 15 days of closure of books.

The Federal Board of Revenue (FBR) has set withholding tax rules for bonus shares issued by companies during tax year 2027, requiring companies to withhold 10% of shares and collect the applicable tax from shareholders.

According to the Income Tax Ordinance 2001, updated for tax year 2027 (July 1, 2026 to June 30, 2027), Section 236Z explains the mechanism for taxation of bonus shares.

Under the provision, every company issuing bonus shares to its shareholders must withhold 10% of the shares, notwithstanding anything contained in any other law.

The withheld bonus shares can only be issued to shareholders after the company collects tax equal to 10% of the value of the total bonus shares, including those withheld.

For listed companies, the value will be determined using the day-end share price on the first day of closure of books. For other companies, valuation will be determined according to the prescribed method.

Tax deposit within 15 days

Section 236Z requires companies to deposit the applicable tax within 15 days of the closure of books, regardless of whether the amount has been recovered from shareholders.

Companies depositing tax on behalf of shareholders are entitled to recover the amount from the respective shareholders before issuing their bonus shares.

If a shareholder neither pays the tax nor collects the bonus shares within 15 days of their issuance, the company may dispose of the shares to the extent necessary to recover the tax paid on the shareholder’s behalf.

Bonus shares treated as shareholder income

The ordinance provides that the issuance of bonus shares will be treated as income of the shareholder.

Any tax collected by the company or proceeds from the disposal of bonus shares and deposited under Section 236Z will be treated as tax paid on behalf of the shareholder.

Importantly, the tax paid under this section will constitute the final tax on income arising from the issuance of bonus shares.