A gift is a sum of money or movable property or immovable property received without consideration or inadequate consideration. Section 56(2) of the Income Tax Act lays down provisions for tax on gifted shares. A gift of monetary value exceeding INR 50,000 is taxable as Income from Other Sources (IFOS) at slab rates. The gift received from a relative, or on the occasion of marriage, as inheritance or in contemplation of death is exempt from tax.
Gift of Shares & Securities
Shares and securities is a movable property. Trading platforms like Zerodha have built a platform to gift stocks, ETFs, and gold bonds after the introduction of e-DIS (electronic delivery instruction slip) by CDSL. Thus, it is now possible to gift stocks to friends and relatives online.
Tax on Shares Gifted for Sender
- On transfer of shares & securities:
- The Gift Tax Act (GTA) was abolished in 1988 and thus sender need not pay tax on gifts.
- As per Section 2(14) of the Income Tax Act, shares and securities are Capital Assets. The transfer of a Capital Asset is taxable as Capital Gains. However, the definition of ‘transfer’ as per Section 47 specifically excludes gifts. Thus, the gift of shares and securities is not taxable in the hands of the sender of the gift.
- On the sale of shares & securities:
- The sale of shares & securities is not taxable in the hands of the sender of the gift.
- Clubbing of Income – 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.
Tax on Shares Gifted for Receiver
- On transfer of shares & securities:
- If the monetary value of shares & securities is up to INR 50,000, such gift is exempt from tax.
- If the monetary value (FMV) of shares & securities is more than INR 50,000, such gift is an IFOS income and taxed at slab rates.
- Shares & Securities received from a relative is exempt income since gift from relative is exempt as per Sec 56(2)(vii)
- Shares & Securities received on the occasion of marriage or inheritance or in contemplation of death of payer is exempt income since such gifts are exempt as per Sec 56(2)(vii)
- On the sale of shares & securities:
Capital Gains tax would arise on the sale of shares. To calculate the tax on gifted shares, here are important points to consider:- Period of Holding – Calculate the holding period from the date of purchase by the previous owner i.e. sender of gift to the date of sale by the receiver of the gift.
- LTCG – Equity Shares held for more than 12 months from date of purchase by the sender to date of sale.
- STCG – Equity Shares held for up to 12 months from date of purchase by the sender to date of sale.
- Purchase Date – The date of purchase by the previous owner i.e. sender of the gift
- Purchase Value – The value of the purchase of the previous owner i.e. sender of the gift
- Sale Date – The date of sale by the receiver of the gift
- Sale Value – The value of the sale by the receiver of the gift
- Tax Liability – Calculate tax liability as per the nature of the capital asset
| Transaction | Sender | Receiver |
| Gift of shares & securities | Not taxable | Exempt Income or IFOS Income |
| Sale of shares & securities | Not taxable | Capital Gains |
Clubbing of Income – 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.
Example – Tax on Gifted Shares
Rajiv purchased 2000 shares at INR 100 of ABC Ltd on 15th February 2020. He gifted 1000 shares to his mother, Shweta on 1st September 2020. FMV on 01/09/2020 was INR 200 per share. Shweta sold out these shares on 2nd March 2021 at INR 400. Calculate the tax liability.
Tax treatment for Rajiv (sender) – No tax liability since the gift of shares is not treated as a transfer of capital asset.
Tax treatment for Shweta (receiver)
- On receiving a gift – no tax liability since gift from a relative is an exempt income as per Section 56(2)(vii) of Income Tax Act.
- On the sale of shares. Here is the tax calculation:
- Sale Date – 02/03/2021
- Sale Value – INR 4,00,000 (400 * 1000)
- Purchase Date – 15/02/2020 (as per previous owner)
- Purchase Value – INR 1,00,000 (100 * 1000) (as per previous owner)
- LTCG – 4,00,000 – 1,00,000 = INR 3,00,000
- Tax on LTCG u/s 112A = 10% * 2,00,000 = INR 20,000
Reporting in ITR – Tax on Shares Gifted
The sender of the gift need not report the gift in the Income Tax Return. The receiver of the gift should report the gift under Schedule Exempt Income if the income is exempt or Schedule OS (IFOS) if the income is taxable. If the gift is taxable, calculate tax liability at slab rates.
On the sale of such shares & securities, report income as capital gains under Schedule CG. The taxpayer should file ITR-2 on the income tax website and pay tax at applicable rates.
Documentation
It is very important to maintain proper documentation for gift transactions. It is advisable for the sender and receiver to maintain a registered gift deed as proof of the gift transaction. In cases of scrutiny, the taxpayer can use this document to justify the genuineness of the gift transaction and avoid charges for tax evasion.
FAQs
If you gift equity shares, it is not considered as the transfer of a capital asset, and thus income tax is not applicable. A gift from a relative is exempt and thus it would be exempt for your brother. When your brother will sell the shares, capital gains would arise.
You can both claim the benefit of LTCG exemption of up to INR 1 lakh u/s 112A. However, to determine the nature of the gains, the holding period & cost of acquisition is calculated as per the previous owner (sender).
If the monetary value of the gift is up to INR 50,000, it is not exempt as per Sec 56(2)(vii).
If the monetary value of the gift is more than INR 50,000, it is taxable in the hands of the receiver as IFOS and taxed at slab rates.
However, if the gift is given on the occasion of marriage, it is exempt as per Section 56(2)(vii) of the Income Tax Act.
Gift of shares and securities to a relative is not taxable in hands of the sender of the gift and exempt in hands of the receiver of the gift. If you gift shares to your wife, there would be no tax liability on the gift transaction. Further, if your wife sells the shares, Capital Gains would arise and tax should be paid at applicable rates. On gifting of shares, the income would get divided and both can enjoy exemption limits. Thus, taxes would be saved.
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:
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
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.
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.
Appreciate your help
Supreeth
Hi @supreeth_Bhat
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).
Hope this helps
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)