A company declares 15% bonus shares — and beside it, 0.78947% cash. Not 0.75%, not 0.8%. Why that exact figure, and does that cash ever reach your bank account? The short answer: that cash is not for you. It is tax money, calculated to the fifth decimal so that almost nothing is left over.
Dividend income is taxed at 5% — before you see it
Under Nepal's Income Tax Act 2058, dividend income carries a 5% final withholding tax for resident individuals. 'Final withholding' means the company deducts the tax and remits it to the revenue office before the dividend reaches you — within 25 days of month-end. What arrives in your account is already net of tax.
Bonus shares are dividends too
A bonus share feels different from cash — no money moves. But for tax purposes a bonus share is dividend income, taxed at 5% on its face value (Rs 100 per share). Ten bonus shares are therefore Rs 1,000 of taxable dividend, and Rs 50 of tax is due on them.
Until recently, arranging that tax was a recurring confusion. SEBON's 10th amendment to the Securities Issuance and Allotment Directive changed the mechanics: the company itself must now deduct and pay the dividend tax when it distributes bonus shares. The investor no longer pays separately.
The ÷19 formula behind the odd percentages
Here is where 0.78947% comes from. On a 15% bonus, the tax is 15 × 5% = 0.75%. But if a company simply declared 0.75% cash 'for tax', that cash would itself be taxed at 5% — leaving only 0.7125% after deduction, not enough to cover the bill. So the cash is grossed up: the company declares cash = bonus ÷ 19, because cash × (1 − 5%) then equals exactly the tax due:
| Bonus declared | Cash declared | Tax covered |
|---|---|---|
| 5% | 0.263% | 0.25% |
| 10% | 0.526% | 0.50% |
| 15% | 0.78947% | 0.75% |
| 20% | 1.053% | 1.00% |
Those awkward decimals in every announcement are this one formula.
A worked example: where the cash actually goes
Take an illustrative holding of 100 shares bought at Rs 550 (Rs 55,000 market value, Rs 10,000 of paid-up face value), with a declaration of 10% bonus + 0.53% cash. You receive 10 new shares. The cash line is 0.53% of the paid-up value = Rs 53. Your taxable dividend is the bonus face value (Rs 1,000) plus that cash (Rs 53) = Rs 1,053 — and the tax at 5% is Rs 52.65, which the company pays out of the Rs 53 cash line. What remains for your account is Rs 0.35: effectively nothing. (Your holding's market value is a separate matter — NEPSE also adjusts the reference price down after a bonus, in proportion to the new share count, so the same total value is spread over more shares.)
How to read a dividend headline
A headline like '10.53% dividend' bundles two very different things: a 10% bonus (more shares, same underlying value, price adjusted down) and 0.53% cash that exists almost entirely to pay tax. The cash yield you actually receive is close to zero. That does not make the dividend bad — bonus shares compound if the company keeps growing earnings — but the headline percentage is not money in your pocket, and it should never be read as if it were.
Frequently asked questions
Is the 5% dividend tax in Nepal final?
For resident individuals, yes — it is a final withholding tax under the Income Tax Act 2058, deducted by the company before the dividend reaches you.
Do I pay tax on bonus shares when I receive them?
The tax falls due on the bonus as dividend income at 5% of face value, and under SEBON's 10th amendment to the Securities Issuance and Allotment Directive the company deducts and pays it — that is exactly what the small cash percentage alongside the bonus is for.
Why is the cash percentage with a bonus never a round number?
Because it is grossed up: cash = bonus ÷ 19, so that after 5% tax is deducted from the cash itself, exactly the tax on the bonus remains covered. For example, 15 ÷ 19 = 0.78947%, which leaves 0.75% after tax — the tax on a 15% bonus.
Does a bonus dividend make me richer?
Not by itself. Your share count rises and the reference price adjusts down in proportion; total value is unchanged at the moment of adjustment.
Sources: Income Tax Act 2058 (5% final withholding on dividends); SEBON's Securities Issuance and Allotment Directive, 10th amendment (the company deducts and pays the bonus-share tax). The worked example is illustrative. This article is published for research and education purposes only. It is not investment advice, and nothing here should be read as a recommendation to buy, sell, or hold any security.