As of 1 April 2019, shares may be gifted in Demat form, and the legal term is known as the ‘Transfer of Shares’. When you want to transfer shares, you are known as the ‘donor’ and the person who receives the gift is known as the ‘donee’. According to the Income Tax Act, gifts you give to a close relative are non-taxable. Nonetheless, if you want to give a gift of shares to a non-relative, what you gift, shares from a Demat account, will be taxable if the value exceeds Rs. 50,000 in a year.
- What is the Procedure for Transfer of Shares?
When you hold a bank account, you may get a free demat account in case you need one. This is where shares are held, linked to a trading portal through which you can buy and sell shares. You may think of giving your relatives a gift. Shares are a good way to start youngsters on an investment journey. This is how you can transfer shares:
- Do an Off-Market Transaction - Since you are the donor, you have to commence an Off-Market Transaction. What this translates to is a settlement of shares among two parties, done mutually, without the involvement of the stock exchange. You have to submit a delivery instruction slip to your Demat account provider (DP or depository participant) to transfer shares from your Demat account (donor account) to the donee’s Demat account. You can do this through an online demat account.
- Details to be Filled - The delivery instruction slip book has to be filled in with certain details, such as:
- Name of the person receiving the gift of shares
- Details of the donee’s account
- Stock or share to be transferred/gifted
- The company’s ISIN number
- The amount of shares to be given as a gift
- On the Donee’s Part - The person receiving the gift has to give a receipt of instruction to their own Demat provider (DP) to accept the shares that are received. The donee may also give a standing instruction to their DP.
- Gift Deed - For legal purposes, and in the event of an income tax - related enquiry, it is recommended that donors of gifts execute a gift deed on legal stamp paper when a transfer of shares is undertaken.
To End With
The transfer of shares from an online demat account is possible, but you may have to physically fill out delivery instruction slips and submit them. Also, once a gift of shares is executed, it can’t be cancelled. You can find out more at Motilal Oswal, giving you the best in financial services.
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I'm an enthusiast with a comprehensive understanding of the financial domain, particularly in the realm of securities, investments, and tax implications. Having actively engaged with financial markets and legal frameworks, I bring forth practical insights that extend beyond theoretical knowledge. My proficiency is evident in the intricacies of Demat accounts, share transfers, and the associated tax implications, as demonstrated by the following analysis.
In the provided article, the concept of transferring shares in Demat form is discussed, emphasizing the legal term 'Transfer of Shares.' As the donor, the person initiating the transfer, and the donee, the recipient, play crucial roles in this process. Notably, the Income Tax Act is referenced, specifying that gifts to close relatives are non-taxable, but transfers to non-relatives may incur taxes if the value exceeds Rs. 50,000 in a year.
The procedure for transferring shares is elucidated, involving an Off-Market Transaction. This is a settlement of shares between two parties without involving the stock exchange. The donor initiates the process by submitting a delivery instruction slip to their Demat account provider. Key details on this slip include the name of the donee, the donee's account details, the specific stock or share to be transferred, the company's ISIN number, and the quantity of shares as a gift.
On the donee's part, they must provide a receipt of instruction to their Demat provider, along with the option to give a standing instruction to facilitate the transfer. To ensure legal validity and address potential income tax-related inquiries, the article recommends the execution of a gift deed on legal stamp paper by the donor.
The article underscores the importance of physical submission of delivery instruction slips for online Demat account holders. Additionally, it emphasizes that once a gift of shares is executed, it cannot be canceled. This comprehensive overview of the transfer process encapsulates the intricacies involved, combining legal and practical aspects.
For readers seeking further information, the article directs them to Motilal Oswal for comprehensive financial services. The inclusion of related articles on opening a Demat account without a broker, factors to consider, and popular stocks further enriches the reader's understanding of the broader financial landscape.
In summary, my expertise lies in understanding the nuances of financial transactions, evident in the detailed analysis of share transfers, Demat accounts, and associated legal and tax considerations.
