Friday, November 23, 2012

How to Gift Shares to our Family Members and the Tax Implications of the same

Are you an avid stock market investor? Do you have a sound stock market portfolio? We all know what a Nominee is – someone who gains possession of your property/investment after your time. But, what if you wanted to give your stock investments in an as-is state to someone? The first question that will arise in your mind is – “Can I really do that?” the second will be “How?” and the third will be “What will be the tax implications?”

Isn’t it???

The purpose of this article is to answer these questions…

Can we Gift Shares to our family members?

Of course YES. Do you think that I will waste my time and yours as well over something that can’t be done???

You can gift equity shares (stocks) that you own to anyone in your family. The person giving the gift is termed the donor, and the person receiving the shares is termed the donee.

Let us say, I own 100 shares of ICICI Bank and want to gift it to my brother. I will be the Donor and my brother will be the Donee. Once the transaction or should I say gifting is complete, my brother will own those 100 shares instead of me.

How to Gift Shares to our Family Members

Since we are gifting shares and not selling them, technically this transaction happens outside the market and there is no transfer of monetary instruments. Below are the steps to transfer shares held in both DEMAT as well as Paper form.

Gifting Shares – In DEMAT Form:

Step 1: The Donor initiates an off-market transaction with his Depository Participant (DP) (In other words DEMAT Account provider) by submitting a Delivery Instruction Slip (DIS) to transfer securities from his DEMAT Account to that of the Donee.

Step 2: The DIS should have the name of the Donee, details of his DP Account, the Security (Share/Stock) being transferred, ISIN Number of the company and the quantity of shares being transferred/gifted.

Step 3: The Donee must give a receipt instruction to his DP (DEMAT Account Provider) to accept these shares

Step 4: Though this step is not mandatory, it is best to execute a gift deed on a non-judicial stamp paper my mentioning the appropriate amount for legal records as well as to avoid any tax queries in future.

Gifting Shares – In Paper Form:

If the shares are in certificate form, a share transfer deed in Form 7B, filled and signed by the donor, needs to be executed and registered. The stamp duty is payable at the rate of 25 paisa for every Rs 100 of the face value, or the market value of shares prevailing on the date of the document, whichever is higher. Once the transfer deed is registered, the share transfer is complete.

Tip:
Holding shares in paper form is not only outdated, but also very hard to maintain. It is easier to maintain share holdings in electronic format in DEMAT Accounts. Converting paper shares into DEMAT is very easy and can be done for a small fee by the DEMAT Account provider. So, I would suggest, you do this before you actually think about gifting or even selling your paper form shares.

Important Note:
The details mentioned in the delivery instruction slip and receipt instruction for off-market transfer must match, otherwise the transfer will not take place.

Tax Implications of Gifting Shares

There is not much clarity about the Gift Tax laws in India. About 10 years ago, any amount received as a gift from a family member was exempt from tax, then a few years ago, the government changed it and put a ceiling of Rs. 50,000/- and then they changed it again stating that, gifts received from Blood Relatives and Family Members is exempt from tax.

So, as of now and per my understanding, if you gift Shares/Stocks to your blood relatives or family members they need not pay any tax on the gift they just received.

Who is part of this Blood Relatives or Family Members category?

The following members will fall under this category of people who need not pay taxes if you gift them Shares that you own.

• Spouse of the individual
• Brother or sister of the individual
• Brother or sister of the spouse of the individual
• Brother or sister of either of the parents of the individual
• Any lineal descendants of the individual or his/her Spouse. Ex: Children, Grand Children, Great Grand Children etc...
• Any lineal ascendant of the individual or his/her Spouse. Ex: Parents, Grand Parents etc...
• Spouse of the Brother/sister of individual or brother/sister of spouse of individual

Does this mean I cannot gift/transfer shares to anyone else?

Of course Not. You can gift/transfer your shares to people who are not part of your family – say Friends. However, if you do so and if the value of the shares being gifted is more than Rs. 25,000/- it will be taxed. The amount in excess of the Rs. 25,000/- limit will be considered Taxable Income for the person receiving your gift and will be taxed accordingly. You can learn more about the Indian Income Tax by Clicking Here

Important Note:
Though the shares are non-taxable in the hands of the receiver when gifted by a family member, they need to pay capital gains tax when they eventually sell it. So, if you decide on selling the shares that I gifted you, you need to pay capital gains tax on it, as per the prevailing tax laws at the time of selling the shares.

Some Important Points to Remember:

a. DEMAT Providers may charge a small fee for effecting this transfer of shares from person A to person B. The fee will vary based on who your DEMAT Provider is.
b. Registering the gift deed is a great idea if the value is significant (Over Rs. 10,000/-) to minimize tax complications for the receiver of the gift
c. If you hold shares in paper form which you wish to transfer to any of your family members, converting them to DEMAT form would be a better idea
d. Though you can gift shares to non-family members too, it will be taxable if the value is over Rs. 25,000/-

Hope you found this article useful…

Happy Stock Market Investing or should I say Stock Gifting!!!

69 comments:

  1. What should be value of Stamp Paper for taking print out of Gift Deed for gifting Shares ?

    ReplyDelete
    Replies
    1. The stamp duty is payable at the rate of 25 paisa for every Rs 100 of the face value, or the market value of shares prevailing on the date of the document, whichever is higher

      Delete
  2. Hello Anand VijayKumar,

    Thanks for informative article.

    Can you please tell me if I (in the capacity of an individual) want to gift some shares worth Rs. 1.6 Lac to my HUF (Hindu Undivided Family - where me, my wife and my son are the members), can I do that? If yes, how and what is the tax implication?

    I am confident that with your rich knowledge, you will be able to help me...

    Thanks,

    Pradip

    ReplyDelete
    Replies
    1. Pradip,
      Yes you can do it and Gifting shares to your wife or children does not attract any tax.

      Anand

      Delete
  3. Hi Anand,
    My mother wants to gift some paper shares to me. who should be the right person to contact for completing all this.

    ReplyDelete
    Replies
    1. Tarun,
      First ask your mother to convert the Paper shares to DEMAT form and then initiate the proceedings through the DEMAT provider.

      Anand

      Delete
  4. anand bhaiya, my papa gifted some shares to me last month which he was holding from last 6 years. now if i sell it today do i have to pay capital gain tax ? thank you.

    ReplyDelete
    Replies
    1. Your dad held the shares for 6 years and transferred it to you. He did not sell so, I dont think you need to pay capital gains tax.

      To be 100% sure pls check with a qualified auditor because there is not much clarity on this topic available to the public

      Anand

      Delete
  5. Thanks for the informative article. My question is a bit out of context. My maternal uncle bought 300 shares of Indian Overseas Bank (of course in Paper format). He passed away in 2009. The shares are still in his name. Now, my Aunt needs to sell them (she has all the original documents). What will be the procedure now to transfer the shares to my Aunt's name and then sell them ? Whom should we contact ? Thanks in advance for the help.

    ReplyDelete
    Replies
    1. Manish,
      As your uncle is no longer alive to do the transfer himself, this process will be a little bit complicated. does your aunt have the legal will or any sort of documentary proof that she is the legal survivor of your uncle?

      Firstly your aunt will require a PAN number to open a DEMAT Account. Ask her to open an account and while doing so, check out the process of getting these paper shares converted onto your aunts new DEMAT account and the service folks in the DEMAT providers office will be able to help you. They will ask for proof like marriage certificate and other documents to prove that your uncle owned the shares and your aunt is the legal heir.

      Anand

      Delete
  6. Hi Anand,
    I wanted to gift my mother about 2L worth of shares from my demat a/c.She have demat,pan card and also ITR for last few years. Questions: 1) what are the tax implications for me. 2) Does she have to pay tax for receving 2L worth shares? 3) If yes, what is tax for her if she sells a) with in one year of my transfer b) after 1year. 4)Do we have to execute gift deed?

    Thanks in advance.
    Rajesh

    ReplyDelete
    Replies
    1. Rajan - Yes you can gift your mom shares. No, she doesnt have to pay any taxes because she is immediate family.

      Yes, once she receives it, the sale would attract taxes as per the capital gains laws that prevail in India.

      Yes, executing a gift deed would be a good idea.

      Delete
  7. Good article Anand. I have transferred / gifted all my shares to my mother.

    When my mother sells this shares what will be:
    1. Purchase price / Cost price to her to calculate income tax. My cost or zero rupees?
    2. What will be purchase date for her? Date of transfer or Date of my purchase?

    ReplyDelete
    Replies
    1. Jinal - Everything will be corresponding to the date/price at which you purchased.

      Delete
  8. Thanks for Anand for the excellent article. If the shares I own have been acquired more than year back when I gift them to my dad if he sells them should he pay taxes?

    ReplyDelete
    Replies
    1. Hi Ram - Yes, he will have to pay long term capital gains tax.

      Delete
    2. All shares listed and sold on the stock exchanges if held for more than a year are tax free.

      Delete
  9. Dear Anand VijayaKumar ji
    My question is that while gifting the shares , we will make a entry of the book value or the market value?
    If it is book value then the account will. Be balanced, if it is market value then the difference amount will go to which account?

    ReplyDelete
    Replies
    1. Manmeet Singh - While dealing in the market, we dont need to worry about book value. We always use the last traded share price for all calculations. Your book value could be 10 and market value could be 100. In that case - you take 100 for all calculations

      What difference are you talking about here to be balanced? I did not fully understand the Question.

      Delete
    2. Purchase cost ...a gift means u dont get anything in return .

      Delete
  10. Hi Anand,

    Can I receive the shares from my uncle (father's elder brother) ? If Yes will there be any tax implication for the same?
    What if I keep it for more than one year so will I have to pay any tax on it?

    ReplyDelete
    Replies
    1. Your fathers elder brother will not be treated as immediate blood relative and hence any shares you receive can be taxed. The value of the shares (in excess of Rs. 25,000) has to be added to your taxable income for the year and will be taxed accordingly.

      Once the shares are transferred, you need to pay taxes based on short-term or long-term capital gains tax rules.

      Delete
    2. Mr Anandkumar

      Under the I-T law, any sum of money , movable or immovable property received by you without consideration (without a quid pro quo) is chargeable to tax as `Income from other sources' -even winnings from lotteries, interest income, to name a few, fall under this head.

      Delete
  11. Hi Anand ,

    Thanks for informative website. I wanted to gift more than 25 lacs worth demat holdings(equity) from my demat account to my mothers demat account. DO I need to execute the gift deed and if yes does that mean it has to be registered too.. I think for cash you can gift up to 25 lacs to your parents without any income tax. Does this hold true for demat holdings too.

    Thanks

    ReplyDelete
    Replies
    1. Anonymous - 25 lakhs is a lot of money and hence registering it and executing the gift deed is important. Yes, since you are gifting to your mother i dont think there would be income tax but remember that there could be legal implications if there are others (like your siblings) who can stake a claim in your parents property.

      Consult a good lawyer reg. the same for more details.

      Anand

      Delete
  12. Hi Anand,

    My dad transferred to me a number of shares of various scripts in 2008. In 2012 I traced the source of many of these scripts and the ones I could find (from him after asking for records) and sold them.

    Now I am still having around 3.5L worth of shares that I want to dispose from a while but unable to do so because I am not able to trace the source, hence cannot be sure about the purchase price. I do have demat statement from 2008 showing these shares in my name.

    Can I claim Rs0 as purchase price. Anyway LTCG for shares is still zero (I think).

    ReplyDelete
    Replies
    1. Yes Anonymous, since you have held these shares since 2008, the LTCG will be 0 however you cannot claim 0 as purchase price. You have to claim the price as of the date those shares were gifted/transferred to you by your father.

      Delete
  13. hello anand, pls reply .. my mother hold shares of sun pharma, 300 shares in paper form , she was holding it before 2001-2002.now they have become 3000 shares due to bonus and splits.. she now wants to gift me those shares .what are the tax implications if i sell them after they are transferred to me?? she doesn't know the purchase price nor does she knows exact date of purchase...the value has become 25 lacs now. pls reply on my mail abhishek99123@yahoo.com. i will be thankful to you...

    ReplyDelete
    Replies
    1. Anonymous - firstly, transfer of shares from mother to son does not attract any taxes. Secondly, since she has been holding the shares for many years now you need not pay any capital gains as well. Just make sure to transfer the shares to your demat account and then sell them via your demat account. During the sale if you pay securities transaction tax and other charges levied by your demat provider, it should be fine.

      Delete
  14. My father have shares worth Rs 1500000/- can he gift to daughter in law

    ReplyDelete
    Replies
    1. Sure but the daughter in law will have to take care of paying the wealth tax plus capital gains tax depending on when they sell it.

      Delete
  15. Hello Anand ji
    PlZ reply
    What should be done regarding transfer of shares of an Indian non listed private ltd co.
    Between sisters????

    Sale or gift????
    Valuation book value or market value???
    Tax implication???

    ReplyDelete
    Replies

    1. Is one sister receiving money on the transaction? If so - it would be a Sale. What was the price the first sister got the shares and what is the price she is selling it? there will be long term capital gains tax implications.

      If the sister is not selling - it would be considered a gift. If it is not listed - how would you calculate book value or market value? Anyways - for a gift see See the section "Gifting Shares – In Paper Form:" in the article above.

      Delete
  16. Anand ji,

    If the transfer of shares are done of an Indian Private Company.

    On what basis should the stamp duty be paid in case of gift??

    Pls reply.

    ReplyDelete
    Replies
    1. The registration part is just for legal purposes. So, I dont think there is any amount as such that you should buy stamp papers for. However, if the shares are gifted to a non-family member, the amount above Rs. 25000 has to be included as an income by the receiver.

      It does not matter if the company is private or govt owned

      Delete
    2. Anand ji,

      But we have to affix share transfer stamps on Form SH-4. So, the share transfer stamps should be calculated based on which value, as there is no consideration involved.

      Delete
    3. I think, It should be the market value of the shares as of when you are trying to register

      Delete
  17. Dear Anand,

    i have long term holding shares in my demat account. i do have another demat account with another broker account. if i do off market transfer and sell these shares from my new account after 1 month, will it be considered as short term or long term. i believe my original purchase date should be accounted for the sale of shares and I do not want to end up in paying tax just because of this off market transfer with the sharetransfer date. Please answer.

    Thanks in Advance.

    ReplyDelete
    Replies
    1. Hi, If both accounts are held by you, why do you want to transfer the shares to the other account?

      Anyways, as both are your accounts, I dont think you are liable to pay taxes but please take the help of a good chartered accountant to tally the transactions otherwise you will definitely be expected to pay taxes if you sell within 1-2 months

      Delete
  18. Suppose the shares are received as a gift and the donee sells it through a recognized stock exchange after a period of 12 months and paying applicable STT, would the capital gains tax liability still subsist?

    ReplyDelete
  19. Sir

    i wish to gift shares of 6lac to mother and 7 lac to father. I have shares in my dmat and they too have. Sir as i wish to gift them do i need to register the deed. Would it work if i make deed on 100 stamp paper and dont get it registered.

    ReplyDelete
    Replies
    1. Registering the gift deed is always a good idea to ensure there are no legal loopholes.

      Delete
  20. Dear Mr Anand

    My mother wishes to gift or transfer some of the shares she is holding in demat mode to me in demat mode..
    a..I would like to know upto what amount can she transfer/gift the same in one financial year.
    b.since some of the holdings are only in the form of Bonus i suppose the cost will be nil.
    c.on transfer what should be the date of purchase and cost of purchase be considered by me in my statement.
    d.Should i prepare / note down the same on the plain paper as gift deed with the value or Rate of the shares on which the transfer takes place

    thanks

    ReplyDelete
    Replies
    1. As it is your mom, you can actually get the shares as a legal inheritance without having to go through this hassle of gifting shares.

      Delete
    2. sir i forgot to mention that as per demat account holding my wife is the second holder and i am the third holder....please excuse me..

      Delete
  21. I have shares of some companies held jointly with my daughter (Her name as second holder in the demat a/c). She wants the shares to be transferred (as gift) to my joint a/c with my son (he is the second holder in another demat a/c). How to proceed and will there be any tax liability to me or to my son ?

    ReplyDelete
    Replies
    1. No, I dont think so. You are basically moving shares from one of your joint accounts to another one of your joint accounts. Where does gifting come into the picture here?

      Delete
  22. I have initiated off-market third party share transfer from my Demat account with DP1 to my relative's Demat account with DP2 after submitting the duly filled Delivery Instruction Slip to my DP1. The share transfer is successfully executed and my relative could receive shares in his Demat account. After this, the DP2 is asking my relative to collect the following from me and submit to him (a) PAN card (b) Duly filled-in and signed share transfer form (c) Client Master List. Do i need to submit it to DP2 ? Pls advise.

    ReplyDelete
    Replies
    1. Yes. This is asked to ensure the transaction is legal and to ensure taxes are paid appropriately by the 2 parties involved

      Delete
  23. I have some account in a demat account jointly holded with my mother. I am the first holder in the account. Now we want to transfer all shares to different demat account where I am the sole holder. Will this be treated as Gift or Transfer to my account?

    ReplyDelete
  24. I have some shares jointly hold in demat account with my mother. I am the first holder and my mother is the second holder in the account. We want to transfer these shares to new demat account solely owned by me.Will there be any tax implication when I transfer the shares? What should be the reason code in DIS slip Transfer to own account" or gift?

    ReplyDelete
    Replies
    1. Just say transfer between accounts. You are the account holder in both accounts so it should be ok.

      Delete
  25. I have two son one daughter And another son both are minor and I Apply IPO through minor account also and shares are allotted to minor account but when I ask to sell that stock broker forbid to me sell that be a case he said minors trading accounts can't open only demat account can be open so you can not sell so give me idea how to release this IPO share fund...

    ReplyDelete
    Replies
    1. I am not aware of such a restriction. As far as I know, If the minor has a demat account he can definitely have a trading account too.. Ask the trader for documentary evidence for this restriction.

      Delete
  26. IF I TRANSFER 100 SHARES OF @400 (PURCHASE PRICE) TO MY SPOUSE THAN WHATWILL BE THE TREATMENT IN MY PROFIT & loss account , Capital account , Balance sheet...

    ReplyDelete
    Replies
    1. If your spouse is employed, she would have to disclose those shares & its profits as part of her tax returns. If she is a home maker, then there is no change. You still need to pay tax on the profits because she is not employed and even if the shares are in her name, you need to pay the taxes

      Delete
  27. Hi Anand,
    Firstly, thanks for the informative blog.
    Regarding gifting of shares - I am the joint holder of some shares with my late father in a Demat account. My mother has a demat and trading account with the same depository. Can I transfer/gift some shares to my mother easily? (By easily I mean without having to open a new trading account in my name. I currently am working abroad and can be in India only after a year).
    Thank you.

    ReplyDelete
    Replies
    1. No, I dont think she can open an account in ur name with you being abroad

      Delete
  28. Is registration of gift deed done on stamp paper in favour of real brother for gifting movable assets (shares) is mandatory? I am asking it as I am based in Delhi and I understand registration of gift deed requires 6% stamp duty which will be too high as amount involved is significant.

    ReplyDelete
    Replies
    1. Hi,
      As the amount involved is significant, I would recommend you consult a good chartered accountant or tax lawyer on the same as your brother would have tax implications because of this gift transaction as well

      Delete
  29. Hello Anand ji,
    Thank you for this usefull information. But I have a question to be asked. My brother who is NRI,having some paper shares. He want to gift the shares to me. Is it possible to transfer the shares without opening a demat account? What are the procedures to be followed?

    ReplyDelete
    Replies
    1. No, I dont think it is possible because all share transactions happen in DEMAT format these days

      Delete
  30. Is there any maximum amount of shares that can be gifted to any relative.

    ReplyDelete
    Replies
    1. As long as the proper taxes are being paid, NO

      Delete
  31. Hello Anand,

    What do you have to say about the shares that have to be transferred by a father to his NRI son?
    Any attractions of Long-term or Short-term Capital Gains?
    Please reply soon!

    ReplyDelete
    Replies
    1. Rishab - The residential status of the receiver is immaterial as the giver is your dad. You are however liable to pay taxes for the capital gains you earn out of the shares.

      Delete

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