Are There Income Tax Implications On Gifting Of Shares?

While most of us know of the word ‘gift’ as referring to a ‘present’ in common parlance, it is also a Legal definition. As per Indian law, you can gift someone money, immovable or moveable property. Thus, you can legally gift another individual shares purchased from the stock market. However, gifts are subject to income tax regulations, and shares are no different. Continue reading to learn more about the income tax implications of gifting shares.

Earlier, the sender of the gift was subject to tax as per the provisions of the Gift Tax Act. However, since the Act has been abolished, the sender is not liable to pay any gift tax.
Also, the Income Tax Act does state that capital gains arise when an individual transfers a capital asset. However, Section 47 of the Act states that this provision excludes ‘gifts’ from the definition of ‘transfer’. Thus, even as per the Income Tax Act, the sender of a gift can enjoy tax exemptions.

Items such as shares, Exchange-Traded Funds (ETFs), mutual funds, jewellery, etc., are considered moveable property. As per Indian law, if you choose to gift such items without consideration and when the Fair Market Value is more than ₹ 50,000, the recipient will be liable to pay tax under Section 56 (2) of the Income Tax Act. Such a gift will be considered income and must be reported under ‘Income from Other Sources’ when you file Income Tax Returns. The tax should be paid as per the slab rates.

However, even when it comes to recipients, gifts can be tax-free in the following circumstances:

• If an individual receives a gift from a relative, including siblings, spouse, and lineal ascendant or descendant.
  

• An individual receives a gift on the occasion of their marriage.
  

• An individual receives a gift by way of inheritance.

• Taxation on Sale: Selling gifts such as shares, ETFs, or mutual funds is taxed under Income from Capital Gains. You need to file an ITR-2 and pay the applicable taxes.
  

• Determine Capital Gains Type: Identify if the tax is Long-Term or Short-Term Capital Gains based on the holding period.
  

• Calculate Holding Period: Measure the holding period from the date the previous owner acquired the asset to the date of sale.
  

• Cost of Acquisition: Use the purchase price paid by the previous owner to calculate Capital Gains.
  

• Maintain Documentation: Ensure you have a gift deed or similar documentation to verify the gifting transaction and avoid scrutiny from the Income Tax Department.

If you have received shares as a gift and want to store them safely electronically, you need a Demat Account. HDFC Bank offers Demat Accounts with Free Demat AMC for the first year, no paperwork, and low brokerage plans. You can open a Demat Account at HDFC Bank in less than 10 minutes from within the comfort of your home. With HDFC Bank, you can begin your investment journey without any hassle.

Click here to open a Demat Account at HDFC Bank today!

Looking out for a Documents Checklist To Open A Demat Account? Click Here.

*Terms and conditions apply. This is an information communication from HDFC Bank and should not be considered as a suggestion for investment. Investments in the securities market are subject to market risks; read all the related documents carefully before investing. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice before you take any/refrain from any action. Tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.