Tax on Gifted Shares

Income Tax
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#1

Gifting is considered a thoughtful way to convey one’s best wishes and greetings on a special occasion. The gifting culture in India has been there for ages and now has been handed down to us as well. Not much has changed in today’s era. Gifting is a gesture that creates bonds and fosters love and care among people.

With time, gifting trends have also evolved. In this digital era of the stock market and the rising number of traders and investors, it is possible to gift shares and securities to your loved ones. It is a good option for gifting as it is something that has growth potential and can also be encashed anytime.

Though gifts received are free of cost, there could be a tax implication to the receiver.

Let’s understand the taxation aspect of gifting shares.

Firstly, what is a “gift”?

In simple words, gifting means transferring money, property- movable or immovable without or inadequate consideration usually out of love and affection.

How can we gift shares?

Majority of the trading platforms nowadays allow gifting shares online using the e-DIS (Delivery Instruction Slip) facility. So, no physical document submission is required*.*

Tax Implications

When there is an income generated from the gift received, it is taxable in the hands of the receiver. The taxability of gifts is determined by two factors: the relationship between the persons and the value of the gift.

  • If the receiver of the gift is a “relative” as per the Income Tax Act, it is not taxable in the hands of the receiver, irrespective of the value.
  • If a gift above ₹50,000 is made to a person other than a relative, then it is taxable in the hands of the receiver.
  • The receiver of the gift should report the gift in his ITR under Schedule Exempt Income if the income is exempt or Schedule OS (IFOS) if the income is taxable.

Who is a relative as per the Income Tax Act?

The following persons are regarded as relatives as per the IT Act:

  1. Spouse of the individual
  2. Brother or sister of the individual
  3. Brother or sister of the spouse of the individual
  4. Brother or sister of either of the parents of the individual
  5. Any lineal ascendant or descendant of the individual
  6. Any lineal ascendant or descendant of the spouse of the individual

Note: Gift received on the occasion of marriage, death & inheritance is not charged to tax.

What does it mean?

For the sender of the gift, there is no tax implication. However, there could be a case of clubbing of income.

For the receiver of the gift, there could be different instances such as:

  • If the monetary value of the shares exceeds ₹50,000, such a gift is taxable under section 56(2)(x) of the Income tax act, under IFOS at a slab rate.
  • If the securities are received as a gift from a relative, it is exempt irrespective of their value. When these shares are sold, then the amount on which tax is already paid shall be the cost of acquisition and profit shall be taxed under Income from Capital Gains in the hands of the receiver. The tax liability depends on factors such as the period of holding of the previous owner, purchase & sales value, and purchase & sale date.

How is this tax calculated? Read about it at Tax on Gifted Shares & Securities - Learn by Quicko

Let’s understand with some examples.

Example 1: Ram received the following gifts on his birthday in the financial year 2022-23.

  1. ₹25,000 from a friend
  2. ₹51,000 from his elder brother
  3. ₹35,000 from his father’s friend

What will be the tax implications?

Answer: In this case, the occasion is a birthday, which is not covered in the tax exemption list.

So, only ₹51,000 shall be exempt as it was received from a relative as per the IT Act. The amount received from a friend and uncle (Ram’s father’s friend) will be taxable fully, it (₹60,000) exceeds the limit of ₹50,000. This shall be taxed at a slab under “Income from Other Sources”.

Example 2:

Muskan received shares from her father as a gift for her birthday on 17 Feb 2023. The FMV of these shares is ₹2,00,000. Her father had purchased them for ₹70,000 7 years ago. She decides to sell these shares and have some liquid funds in hand. She also received some jewelry worth ₹80,000 as a gift from her mother for starting a new business. What are the tax implications?

Answer: In this case, the FMV of the shares is ₹2,00,000 and was purchased for ₹70,000. Thus, the excess amount, ie, ₹1,40,000 will be chargeable to tax under the head Income from Capital Gains.

Since the shares are held for more than 12 months from the date of purchase by the previous owner (ie, father), it is considered as Long Term.

So, the difference (₹1,40,000 - ₹1,00,000 = ₹40,000) gain will be taxed as LTCG at a flat rate of 10% after considering the exemption limit of ₹1,00,000 u/s 112A.

The jewelry received as a gift will be exempted as it is received from a relative under the IT Act.

Have questions? We answer them!

#2

“reliance” share current market price on the NSE exchange is Rs.2427/ =
but . i sell the 100 shares in “off-market transfer” to my friend at a discount price of Rs.2000/=
OR
if i sell the 100 shares in “off-market transfer” to my friend at a premium price of Rs.3000/=

what is the tax implication of the above transaction to my friend and to me ?

#3

Hi @HIREiN

The taxation aspect remains the same even in case of an “off-market transfer” of shares.
Just like any other transaction, the taxes on the off-market trading generally depend upon the period for which they are held.

#4

so . it does not affect the buyer or seller whether the offline-transaction happened at a premium price or at a discount price ?

but , then , this is a loophole in the system !

one might sell the shares in offline at a discount price (of the current online market price) to save the tax and settle the discounted money in cash (black money) !

is this so ? or am i missing something ?
@Shrutika_Shah

#5

Hey @HIREiN,

For Off-market transactions, since the transfer of shares is not via recognized exchanges without payment of STT they are chargeable to tax at higher rates.

Long-term capital gains are taxed at 20% and STCG at slab rates even for listed shares.

These transactions are tracked in the AIS of the taxpayer as well.

Hope this helps!

#6

how much ?
20% or slab rate ; whichever higher !

#7

Hi @HIREiN

For LTCG it is 20% and STCG at slab rate.
LTCG is taxed at 10% for listed shares above ₹1,00,000 and STCG at 15%.

1 Like
#8

Hi @Shrutika_Shah @TeamQuicko

I am planning to gift shares via offline transfer to my spouse using cdsl easiest portal . Experts pls answer the below:
1)This is a transferred without consideration. Correct ?
2)is a gift deed required for such transactions as it’s fully digitised now and trackable ?
3)what is income that has to be reported by my spouse while filing. Is it depending on the market price as on transaction date of gift transfer OR the aquisation price by me OR FMV on transaction date ?
4) what is the “reason for trade” given in cdsl easiest. Is it “gifting” OR “transfer to specified member in family” ?
5)On selling , what has to be reported by my spouse as entire ltcg will be clubbed with mine ?
6)Is it possible for her to pay full tax on ltcg here as percentage tax is same whoever pays ?
7)How is FMV calculated for listed stocks bought after 2020 ?

#9

Hi @Rag

Here are the answers to your various questions.

  1. Since its gifting of shares to a relative (spouse) as per the income tax act, it is without or inadequate consideration.
  2. For legal purposes, and in the event of an income tax-related inquiry, it is recommended that donors of gifts execute a gift deed on legal stamp paper when a transfer of shares is undertaken.
  3. Income/Loss arises when there is a sale of shares. Your spouse will be required to report such a sale while filing an ITR where the purchase price of shares shall be the cost to the previous owner and the gains/loss shall be taxable in the hands of the receiver.
  4. You can select “Transfer to specified member in family” inorder to avoid stamp duty charges.
  5. On the sale of those gifted shares, the clubbing provisions apply if your spouse does not have any taxable income
  6. In case of LTCG from the sale of shares, the income shall be clubbed with your income and hence you will be required to pay tax.
  7. The FMV shall be the closing price of the shares as on the date you require the FMV.

Hope this helps!

#10

@Shrutika_Shah . Thank you for the replies… Some confusions . Kindly correct me pls.
1)If gifting with no consideration - Then There is no stamp duty to pay here.
2)Point noted regarding gift deed.
3)Post gifting, before selling of shares, is there anything that needs to be reported while my spouse files ITR ?
Also you mentioned about purchase price . But what about purchase date ?
4)For transactions without consideration - “Gift” should be selected ?
5)Does clubbing provision apply if there is no other income for her, but is an IT assessee.
6)IF clubbing provisions apply, No tax required to by receiver here as Entire LTCG is taxed for me. In this case, what is reported as income/gain/loss by my spouse w.r.t the selling of shares ?
7)FMV is same as market value w.r.t. shares ?

#11

if forgot to select this option by mistake and stamp duty paid ; how can i claim refund of the stam duty later on ?

#12

Hi @Rag

Here are answers to your various queries,

  1. Yes, this is because you have already paid the stamp duty when you originally purchased the shares. So when you gift, which is without/inadequate consideration, you need not pay again.
  2. Alright, if the gift deed is clarified.
  3. She will be required to show the same as gift income under Income From Other Sources. But this shall be exempt as it is received from a relative as per the Income Tax Act.
  4. Yes, you may select gift. Because a gift is done without/inadequate consideration.
  5. Yes, clubbing provisions apply, if there is no other income.
  6. If clubbing provisions apply, then the entire income is taxable as LTCG/STCG in your hands, not your spouse’s hands. The income shall be reported as STCG/STCL/LTCG/LTCL depending upon the period of holding.
  7. Yes, FMV is the fair market value of the shares as of the particular date.

For any further queries, you can book a MEET where you will be able to connect with our tax experts and clear all your doubts.

#13

Hi @HIREiN,

You can book a MEET where you will be able to connect with our tax experts and clear all your doubts.

#14

That was so much helpful @Shrutika_Shah . I will certainly need to book a MEET when I do the filing in coming months.
The theory is more clearer now, thank you for that.
When we say Income on Gifted shares means::

  • Does it mean Dividends only, while holding ?
    AND
    -On selling its the entire sale proceeds or just the Gains are treated as income ?
1 Like
#15

Hi @Rag

Glad the information was helpful to you.
Income from gifted shares means:

  1. While holding, dividend income which will be taxed under Income from Other Sources
  2. At the time of selling, the entire gain/loss (net consideration) shall be taxable under Income from Capital Gains.