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Is there any income tax implications on gifting of shares?

A gift may be in the form of money, immovable property or movable property. It is important to understand the tax implications, disclosure in Income Tax Return and maintaining documentation. Here's an explainer by Quicko

Tax implications in the hands of the sender * of the gift

Since the Gift Tax Act (GTA) was abolished the sender is not liable to pay any tax on gifts.

As per the Income Tax Act, Capital Gains would arise on the transfer of a Capital Asset. However, Section 47 specifically excludes ‘gift’ from the definition of ‘transfer’. Thus, the sender of a gift is not liable to pay income tax on such a transaction.


Tax implications in the hands of the receiver of the gift

On receiving the gift:

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

On the sale of the gift:

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.

To determine the nature of Capital Gains whether STCG or LTCG, the holding period would be determined from the date of acquisition by the previous owner till the date of sale. To compute the Capital Gains, Cost of Acquisition of the Capital Asset would be determined as the purchase price of the previous owner.

The sender and recipient must maintain proper documentation such as a gift deed to justify the genuineness of the gift transaction since there are chances of scrutiny from the tax department if the gift amount is high.


* Note:
At Zerodha, for the purpose of calculating the P&L and buy averages, the gift trade will be entered at the closing price of the stock on the day the transfer of the stocks happens. The holding transferred by the sender of the gift will be closed at the previous closing price of the stock, and the average price for the receiver of the stock will be the same previous closing price on the day the transfer is executed.