Are there any income tax implications on the gifting of shares?

A gift may be in the form of money, immovable or movable property. Understanding the tax implications and disclosure in Income Tax returns and maintaining documentation is important. To learn more about taxes, visit learn.quicko.com/tax-gifted-shares-securities.

Tax implications in the hands of the sender of the gift¹:

The sender of the gift is not liable to pay taxes as the Gift Tax Act (GTA) was abolished. According to the Income Tax Act, capital gains can arise from the transfer of a capital asset. However, gift is expressly excluded from the definition of transfer under Section 47. Therefore, income tax on such a transaction is not liable to be paid by the sender of a gift.

Tax implications in the hands of the receiver of the gift:

Under Section 56(2) of the Income Tax Act, the recipient is liable to be taxed for gifts of movable property, such as shares, ETFs, mutual funds, jewellery, drawings, etc., without consideration and exceeding the fair market value of more than ₹50,000. Income from such gifts should be reported under the head Income from Other Sources in the Income Tax Return, and tax at slab rates should be paid.

Taxes on the gifting of shares are exempt in the following situations:

• Individuals receiving gifts from a relative (including siblings, spouse and lineal ascendants or descendants). To learn more, visit learn.quicko.com/gift-under-income-tax-act#exempt.
• Individuals receive gifts on the occasion of marriage.
• Gift received by inheritance.

On the sale of the gift:

If shares, ETFs, mutual funds, etc., are received as a gift and subsequently sold, the income would be taxable under the head Income from Capital Gains. Tax at applicable rates should be paid, and the recipient should file ITR-2.  To learn more, visit learn.quicko.com/tax-gifted-shares-securities and learn.quicko.com/equity-share-trading-income-tax-treatment.

The holding period for determining the nature of Capital Gains, whether STCG or LTCG, would be determined from the date of acquisition by the previous owner until the date of sale. The capital asset acquisition cost would be determined as the previous owner's purchase price to compute the capital gains.

To justify the genuineness of the gift transaction, proper documentation, such as a gift deed, should be maintained by the sender and recipient. In case of high gift amounts, there are chances of scrutiny from the tax department.

Notes

¹At Zerodha, for tracking and reporting purposes, the stock's closing price on the day the stock gets transferred is the exit price for the person gifting the stock, and the same price is used as an entry price for the person receiving the gift. The average price is updated within 3 working days after the stocks are transferred. While filing for income tax, a different view can be taken on the acquisition price.