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§01 · EDITORIAL · GLOSSARY · STOCK-SPLIT

Stock Split

A corporate action reducing each share's face value (e.g., ₹10 → ₹2) and proportionally increasing share count; total market capitalisation and shareholder value are unchanged.

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Definition

A stock split is a corporate action in which a company divides its existing shares into a larger number of shares by reducing the face value (also called par value) of each share proportionally. The most common splits are 1:2 (₹10 face value → ₹5) or 1:5 (₹10 → ₹2). Stock splits are governed by SEBI LODR Regulations 2015 (Reg. 30) for disclosure and the Companies Act 2013 (Section 61) for the legal mechanism of altering the memorandum. A stock split does not change the company's total paid-up share capital in value terms — only the denomination changes. Total market capitalisation is unchanged at announcement.

Mechanics & Timeline

  1. Board approval: Board passes resolution to reduce face value; no shareholder vote required if Memorandum of Association is amended through a special resolution (Companies Act §61 read with §14).
  2. Shareholder approval: Special resolution via postal ballot or general meeting to alter MoA.
  3. Filing with RoC: Form MGT-14 filed with Registrar of Companies within 30 days of special resolution.
  4. SEBI/exchange notification: Record date announced to exchanges (minimum 7 working days' advance notice per SEBI LODR Reg. 30).
  5. Record date: Shareholders on record receive split shares. Ex-split trading begins on record date.
  6. Credit of split shares: New share certificates/Demat credits within 2–3 working days of record date.

Price adjustment formula: Ex-split price = pre-split price ÷ split ratio. For a 1:5 split (₹10→₹2), a ₹2,500 share becomes 5 shares of ₹500 each.

Tax Treatment

  • No tax event at split: A stock split is not a transfer under Section 2(47) of the Income Tax Act — no capital gains tax arises at the time of the split.
  • Cost basis adjustment: The original cost of acquisition is spread proportionally across the post-split shares. If 100 shares were bought at ₹1,000 each (total cost ₹1,00,000) and a 1:5 split is done, cost per post-split share = ₹200 (total cost remains ₹1,00,000 across 500 shares).
  • Holding period: Post-split shares inherit the holding period of the original shares (unlike bonus shares, which have a fresh holding period from the allotment date of the bonus).
  • On sale: Normal STCG (20% u/s 111A) or LTCG (12.5% u/s 112A) rules apply based on the holding period from the original purchase date.

Investor Protection

  • Liquidity improvement: Lower per-share price post-split makes the stock more affordable, improving retail investor participation and daily trading volumes — indirectly benefits existing shareholders.
  • No dilution: Proportional ownership percentage of every shareholder is unchanged.
  • LODR disclosure: Record date must be disclosed to exchanges with minimum 7 working days' advance notice — preventing insider trading advantage on the ex-split adjustment.
  • Derivative contract adjustments: For stocks with F&O contracts, NSE/BSE automatically adjust lot size and strike prices on the ex-split date — preventing mispricing in derivatives.

Worked Example

MRF Limited (Face Value ₹10 → ₹1) — Not yet split as of 2024: MRF is a notable example of a company that has not split its stock — its shares traded above ₹1,40,000 per share in 2024, making it the highest-priced individual share on NSE. This illustrates management's deliberate choice to forgo a split to deter speculation and maintain an institutional-quality shareholder base.

Infosys Split (₹10 → ₹5, 2018):

  • Record date: June 1, 2018.
  • Pre-split price (approx.): ₹1,160 per share (face value ₹10).
  • Post-split: 2 shares per existing share at ₹580 each (face value ₹5).
  • Share count doubled from ~430 crore to ~860 crore shares.
  • Objective: Improve liquidity and affordability for retail investors; Infosys had deferred its split for several years.
  • Market cap: Unchanged at ~₹2,55,000 crore at the ex-date price.

See Also

Primary Source

SEBI LODR Regulations 2015, Reg. 30 — sebi.gov.in; Companies Act 2013, Section 61 — mca.gov.in

MintByte is registered with SEBI as an Investment Adviser (ARN-314872) and APMI (APRN-01658). This glossary entry is for educational purposes only and does not constitute investment advice.

Reviewed · January 2026

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Glossary definitions are written for Indian capital allocators first; where US convention differs, the entry calls that out explicitly. MintByte is an AMFI-registered mutual fund distributor (ARN-314872); SEBI Registered Investment Adviser and Research Analyst registrations are in process. Not investment advice.