Tax on shares received as a gift

Income Tax Income from Capital Gains
1

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?

2

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.

1 Like
3

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??
4

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
1 Like
5

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?

1 Like
6

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.

1 Like
7

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

1 Like
8

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.

1 Like
9

HI @Divya_Singhvi
I have 4 questions

1.What is the tax treatment if the purchase date and purchase cost is not known. The securities being gifted in this case were purchased in physical format, converted to demat format later. The physical share certificates do not exist any more. The dematerialized shares do not show the purchase date.

  1. Can STT (paid while selling the shares) be clubbed with purchase cost for calculating LTCG?
  2. Will it be advance tax payment? how to pay the tax on such LTCG? how to show this on ITR? will this have a different ITR form?
  3. How does the reciever of the gift show it on IT return? what if the receiver further gifts the securities to another person in the same assessment year?

Appreciate your help
Supreeth

10

Hi @supreeth_Bhat

  1. In cases (inherited) where the cost for which the previous owner acquired the shares cannot be ascertained, and the shares were purchased before the 1st day of April 2001, it is at the option of the assessee to take the fair market value of the asset on 1st April 2001 as Cost of acquisition.

2. No STT cannot be claimed as an expenditure as it has been specifically excluded by the IT Act.

3. No STT is different from Income Tax Payment. It will not be considered as an advance tax payment. If there are tax dues on LTCG you pay it directly through the TIN-NSDL website or while filing ITR. This will reflect under the capital gains schedule in ITR. In the case where your income includes capital gains, you are required to file ITR-2 (Assuming no business income).

  1. Gift from a relative is exempt and the receiver needs to disclose under exempt income irrespective of the fact that it is further gifted.

Hope this helps :slightly_smiling_face:

11

Please advice on this scenario. I gift shares to my spouse and she uses that to plege and trade in f&o. Loss or Proft will be clubbed in the hands of sender or receiver (spouse)

1 Like
12

@Kaushal_Soni @Divya_Singhvi @Laxmi_Navlani @Sakshi_Shah1 @AkashJhaveri can you help with this?

13

Can someone please help with this query?

14

Should I disclose the gift stock received during ITR filing?

I have received the gift stocks/shares(still holding) from my mom which is worth of 23,000 ? Do I need to declare while filing the ITR? If yes, explain.
Thanks advance.

15

Hey @gvinaycse, Gift of movable property such as shares, ETFs, mutual funds, jewellery, drawings etc without consideration and exceeding Fair Market Value of more than INR 50,000 is taxable in the hands of the recipient under Section 56(2) of the Income Tax Act. Such income should be reported under the head Income from Other Sources in the Income Tax Return and tax should be paid at slab rates. Taxes on the gifting of shares are exempt in the following situations:

  • Individual receiving gift from a relative (including siblings, spouse and lineal ascendants or descendants)
  • Individual receiving gift on the occasion of marriage
  • Gift received by way of inheritance.

Sale of shares, ETFs, mutual funds, etc received as a gift would be taxable under the head Income from Capital Gains. The recipient should file ITR-2 and pay tax at applicable rates.

16

A post was split to a new topic: Form 13 Filing Method

17

Dear Mates,

Would like to know whether transfer of share as a gift to parents attract any tax in the hands of sender/receiver.

Thanks in advance!

18

Hey @RK07, if the monetary value of shares & securities is up to INR 50,000, such gift is exempt from tax at the hands of the receiver. Moreover, the sale of shares & securities is not taxable in the hands of the sender of the gift.

19

Hi,

I have gifted the shares to my spouse. I like to know what information should be mentioned in ITR. Consider the below arbitrary example for considering the taxation.

Purchased 50 shares @ 2000 on 01/01/2020 by me.
gifted 50@4000 on 01/01/2021 to the spouse.
Sold 50@5000 on 01/02/2021 by the spouse
Capital gain will be 50 * 3000 = 150000

Now, this 150000 as capital gain will have to club under my income and it will be LTCG.

What will be the spouse’s income in such a case? Is it 150000 or 50 * 1000 = 50000.

What information wife has to show while filing ITR?
Like 50*4000 as exempt income and what about the capital gain?

Next time gain arises by investing 150000 or 50000, I do not want to club it with my income. Is it possible?

20

Hi, I read your article and it says,

It is very important to maintain proper documentation for gift transactions. It is advisable for the sender and receiver to maintain a registered a gift deed as a proof of the gift transaction. In cases of scrutiny, this document can be used to justify the genuineness of the gift transaction and avoid charges for tax evasion.

Could you please tell me how can we keep track of it? I have received shares as gift in zerodha account and we have email regarding it, is there anything else we have to consider as a proof?