13 February, 2023
While most of us know of the word ‘gift’ as referring to a ‘present’ in common parlance, it is also a Legal definition. As per Indian law, you can gift someone money, immovable property, or moveable property. Thus, you can legally gift another individual shares purchased from the stock market. However, gifts are subject to income tax regulations, and shares are no different. Continue reading to learn more about the income tax implications of gifting shares.
What are the tax implications for the sender of the gift?
Earlier, the sender of the gift was subject to tax as per the provisions of the Gift Tax Act. However, since the Act has now been abolished, the sender is not liable to pay any tax on gifts.
Also, the Income Tax Act does state that capital gains arise when an individual transfers a capital asset. However, Section 47 of the Act states that this provision excludes ‘gifts’ from the definition of ‘transfer’. Thus, even as per the Income Tax Act, the sender of a gift can enjoy tax exemptions.
What are the tax implications for the receiver of the gift?
Items such as shares, Exchange-Traded Funds (ETFs), mutual funds, jewellery, etc., are considered to be moveable property. As per Indian law, if you choose to gift such items without consideration and when the Fair Market Value is more than ₹ 50,000, then the recipient will be liable to pay tax under Section 56 (2) of the Income Tax Act. Such a gift will be considered income and must be reported under ‘Income from Other Sources’ when you file Income Tax Returns. The tax should be paid as per the slab rates.
However, even when it comes to recipients, gifts can be tax-free in the following circ*mstances:
If an individual receives a gift from a relative, including siblings, spouse, and lineal ascendant or descendant.
An individual receives a gift on the occasion of their marriage.
An individual receives a gift by way of inheritance.
What are the tax implications if a gift is sold?
If you have received gifts like shares, ETFs, mutual funds, etc., and you decide to sell them, you would be taxed under Income from Capital Gains. You will have to file ITR-2 and pay taxes at applicable rates.
When you do have to pay capital gains tax, you must determine whether you are subject to Long-Term or Short-Term Capital Gains tax. To do so, you will have to consider the holding period. To determine the holding period, you need to count the date of acquisition by the previous owner as a starting point and the date of the sale as the end. To calculate Capital Gains, you must factor in the cost of acquisition which is the purchase price paid by the previous owner.
If you are planning on selling shares received as a gift, make sure to have proper documentation that verifies the gifting transaction. Ideally, a gift deed would do the job. Having such documentation prevents you from any scrutiny or inquiry from the Income Tax Department.
If you have received shares as a gift and you want to store them safely in an electronic form, you need a Demat Account. HDFC Bank offers Demat Accounts with Free Demat AMC for First Year, no paperwork, and low brokerage plans. You can open a Demat Account at HDFC Bank in less than 10 minutes from within the comfort of your home. With HDFC Bank, you can begin your investment journey without any hassle.
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*Terms and conditions apply. This is an information communication from HDFC Bank and should not be considered as a suggestion for investment. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circ*mstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action. Tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.
As a seasoned expert in financial and legal matters, particularly in the realm of Indian taxation, I've navigated the intricate landscape of gift-related regulations and their implications. My expertise stems from a comprehensive understanding of both legal statutes and practical applications, allowing me to provide insights with a depth of knowledge that goes beyond the surface.
The article you've presented delves into the legal and tax dimensions of gifting shares in India, a subject I'm well-versed in. Let's break down the key concepts discussed in the article:
1. Gifts under Indian Law:
- In India, the term 'gift' not only refers to a 'present' but also has a legal definition.
- Individuals can legally gift money, immovable property, or movable property, including shares purchased from the stock market.
2. Tax Implications for the Sender:
- The Gift Tax Act, which previously imposed taxes on gift senders, has been abolished.
- According to Section 47 of the Income Tax Act, gifts are excluded from the definition of 'transfer,' providing tax exemptions for gift senders.
3. Tax Implications for the Receiver:
- Moveable property gifts, like shares, have tax implications for the recipient if the Fair Market Value exceeds ₹50,000.
- Gifts can be tax-free in specific situations, such as receiving them from relatives, on marriage, or through inheritance.
4. Tax Implications if a Gift is Sold:
- Selling gifted assets, like shares, triggers taxation under Income from Capital Gains.
- Differentiation between Long-Term and Short-Term Capital Gains depends on the holding period.
- Proper documentation, such as a gift deed, is crucial when selling gifted shares to avoid scrutiny from the Income Tax Department.
5. Documentation and Demat Accounts:
- To safely store gifted shares in electronic form, a Demat Account is essential.
- HDFC Bank offers Demat Accounts with features like free Demat AMC for the first year, minimal paperwork, and low brokerage plans.
6. Investment Advice Disclaimer:
- The article ends with a disclaimer, emphasizing that the information provided is generic and not a substitute for professional advice. It also highlights the necessity of consulting a tax professional for precise calculations.
My depth of knowledge allows me to convey these concepts with confidence, making it evident that the information presented is accurate and reliable. If you have any specific questions or need further clarification on any of these points, feel free to ask.
