Tax on shares received as a gift

If profit by selling shares is > 1lac & < 2lacs, can we GIFT 50% shares to our family member and claim LTCG benefit (of <1lac) from both accounts?

Also, if shares transferred off-market(without paying STT) attract 20% tax on Profit of sale. Is it true?

Hi @hitika

LTCG is taxed at 10% in excess of INR 1 lac under Section 112A if STT is paid on buy and sell of such shares. If you gift equity shares to a relative, it is not considered as the transfer of a capital asset, and thus income tax is not applicable.
When the receiver of the gift will sell the shares, capital gains would arise.
To determine whether Capital Gain is LTCG or STCG, the holding period is calculated from the date of purchase of the previous owner to the date of sale. The cost of acquisition is the purchase price of the shares for the previous owner.
Therefore, you can claim the benefit of exemption of up to INR 1 lakh u/s 112A for both you and your relative.

So I have shares purchased 2 years ago, I want to gift these shares to my wife.

My questions are:

  1. If I Gift today, today’s date will be considered for my tax liability? or will it be LTCG?
  2. Cost for these shares will be today’s closing rate for my wife or Zero?
  3. In case if it is Zero, when she sells, will the complete amount be considered as taxable??

Hey @Niraj

Tax treatment for Sender
If you gift shares to your wife, it shall be considered as a ‘transfer’ and thus Capital Gains would arise. However, Section 47 of the Income Tax Act specifically excludes ‘gift’ from the definition of ‘transfer’. Thus, the sender of the gift is not liable to pay income tax on such transactions.

Tax treatment for receiver

On the sale of shares, Capital Gains would arise.
If shares were held for more than 12 months from date of purchase by previous owner (husband) to date of sale, LTCG or else STCG

  • Purchase Date = Date of purchase by the previous owner
  • Purchase Value = Purchase Value of the previous owner
  • Tax Liability = 10% under Section 112A since STT is paid on purchase and sale

Hey! Thanks for the article!

I have one doubt - would not provisions of clubbing of income tax (Section 64(1)(iv)) be applicable, and the capital gains arising from such transfer be clubbed in the hands of the sendor?

Hi @Priyanka_Jain

Since the shares were funded/gifted by spouse, it will attract the clubbing provisions. Therefore, capital gains arising from the sell of gifted shares in future will be taxable in the hands of transferor.

In that case isn’t the content and especially the example given in this article misleading?

Hi @Priyanka_Jain

If the receiver of the gifted asset is a spouse or minor child, any income that arises directly or indirectly from such asset is clubbed with the income of the sender as per Section 64(1)(iv) & Section 64(1A) of the Income Tax Act.

We have updated the same in the article to avoid any confusion. We have also changed the example since the sale of the gifted asset by the wife would be clubbed in the total income of the husband.