Sakshi Shah
Gift Income
income from trading
Income Tax
Last updated on February 27th, 2024
In India, the tax on gifted shares is governed by the Income Tax Act 1961. The transfer of shares as a gift triggers specific tax implications for both the donor and the recipient. The tax treatment is influenced by factors such as the relationship between the donor and the recipient, the value of the gifted shares, and whether the transaction falls under specified exemptions.
INDEX
- Tax Implication for Sender on Gifted Shares
- Tax Implication for the Receiver of Gifted Shares
- Reporting in ITR
- Documentation
- FAQs
A gift refers to the receipt of money, movable property, or immovable property without any consideration or with inadequate consideration. Section 56(2) of the Income Tax Act outlines the regulations regarding the taxation of gifted shares. Further, Shares and securities are considered as movable property. Trading platforms have built a platform to gift stocks, ETFs, and gold bonds after the introduction of e-DIS (electronic delivery instruction slip) by CDSL. Thus, it is now possible to gift stocks to friends and relatives online.
- On transfer of shares & securities:
- The Gift Tax Act (GTA) was abolished in 1988 and thus, the sender need not pay tax on gifts.
- As per Section 2(14) of the Income Tax Act, shares and securities are Capital Assets. The transfer of a Capital Asset is taxable as Capital Gains. However, the definition of ‘transfer’ as per Section 47 specifically excludes gifts. Thus, the gift of shares and securities is not taxable in the hands of the sender of the gift.
- On the sale of shares & securities:
- The sale of shares & securities is not taxable in the hands of the sender of the gift.
- Clubbing of Income – If the receiver of the gifted asset is a spouse or minor child, any income that arises directly or indirectly from such asset is clubbed with the income of the sender as per Section 64(1)(iv) & Section 64(1A) of the Income Tax Act.
- On transfer of shares & securities:
- If the monetary value (FMV) of shares & securities is up to INR 50,000, such a gift is exempt from tax.
- If the monetary value (FMV) of shares & securities is more than INR 50,000, such gift is an IFOS income and taxed at slab rates.
- Shares & Securities received from a relative are exempt from income since a gift from a relative is exempt as per Sec 56(2)(vii).
- Shares & Securities received on the occasion of marriage or inheritance or in contemplation of the death of the payer are exempt income since such gifts are exempt as per Sec 56(2)(vii).
- On the sale of shares & securities:
Capital Gains tax would arise on the sale of shares. To calculate the tax on gifted shares, here are important points to consider:- Period of Holding – Calculate the holding period from the date of purchase by the previous owner i.e. sender of the gift to the date of sale by the receiver of the gift.
- LTCG – Equity Shares held for more than 12 months from the date of purchase by the sender to the date of sale.
- STCG – Equity Shares held up to 12 months from the date of purchase by the sender to the date of sale.
- Purchase Date – The date of purchase by the previous owner i.e. sender of the gift
- Purchase Value – The value of the purchase of the previous owner i.e. sender of the gift
- Sale Date – The date of sale by the receiver of the gift
- Sale Value – The value of the sale by the receiver of the gift
- Tax Liability – Calculate tax liability as per the nature of the capital asset
| Transaction | Sender | Receiver |
| Gift of shares & securities | Not taxable | Exempt Income or IFOS Income |
| Sale of shares & securities | Not taxable | Capital Gains |
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Let us understand this with the help of an example
Rajiv purchased 2000 shares at INR 100 of ABC Ltd on 15/02/2020. He gifted 1000 shares to his mother, Shweta on 01/09/2020. FMV on 01/09/2020 was INR 200 per share. Shweta sold out these shares on 02/03/2021 at INR 400.
In this case, there will be no tax liability for Rajiv. Further, upon receiving the gift, Shweta is not required to pay anything. However, at the time of selling the shares, she must pay capital gains, which will be calculated as follows:
| Particulars | Amount(INR) |
| Sales (02/03/2021) | 4,00,000 |
| Purchase (15/02/2020) | 1,00,000 |
| LTCG | 3,00,000 |
| Tax @10% u/s 112A (2,00,000*10%) | 20,000 |
Reporting in ITR
The sender of the gift is not required to report the same in their Income Tax Return. However, the receiver of the gift should report it under Schedule Exempt Income if the income is exempt or Schedule OS (IFOS) if the income is taxable. If the gift is taxable, it will taxed at slab rates.
On selling such shares & securities, the income should be reported as capital gains under Schedule CG. The taxpayer should file ITR-2 and pay tax at applicable rates.
Documentation
It is very important to maintain proper documentation for gift transactions. The sender and receiver should maintain a registered gift deed as proof of the gift transaction. In cases of scrutiny, the taxpayer can use this document to justify the genuineness of the gift transaction and avoid charges for tax evasion.
FAQs
In the case of gifted shares, which date should be considered for the cost of acquisition?
For calculating the capital gain, the cost of acquisition should be considered based on the previous owner’s purchase date, not the date on which you received the shares.
I want to gift shares to my friend, is it taxable?
If the monetary value of the gift is up to INR 50,000 it is exempt and if it exceeds that it will be taxable in the hands of the receiver as IFOS and taxed at slab rates.
However, if the gift is given on the occasion of marriage, it is exempt as per Section 56(2)(vii) of the Income Tax Act.
Can I save taxes by gifting shares to my wife?
Gifting shares to your wife incurs no tax liability on the gift transaction as she falls under the relative definition. However, if your wife sells the shares, she must pay taxes on the Capital Gains at applicable rates.
Hi @hitika
LTCG is taxed at 10% in excess of INR 1 lac under Section 112A if STT is paid on buy and sell of such shares. If you gift equity shares to a relative, it is not considered as the transfer of a capital asset, and thus income tax is not applicable.
When the receiver of the gift will sell the shares, capital gains would arise.
To determine whether Capital Gain is LTCG or STCG, the holding period is calculated from the date of purchase of the previous owner to the date of sale. The cost of acquisition is the purchase price of the shares for the previous owner.
Therefore, you can claim the benefit of exemption of up to INR 1 lakh u/s 112A for both you and your relative.So I have shares purchased 2 years ago, I want to gift these shares to my wife.
My questions are:
- If I Gift today, today’s date will be considered for my tax liability? or will it be LTCG?
- Cost for these shares will be today’s closing rate for my wife or Zero?
- In case if it is Zero, when she sells, will the complete amount be considered as taxable??
Hey @Niraj
Tax treatment for Sender
If you gift shares to your wife, it shall be considered as a ‘transfer’ and thus Capital Gains would arise. However, Section 47 of the Income Tax Act specifically excludes ‘gift’ from the definition of ‘transfer’. Thus, the sender of the gift is not liable to pay income tax on such transactions.Tax treatment for receiver
On the sale of shares, Capital Gains would arise.
If shares were held for more than 12 months from date of purchase by previous owner (husband) to date of sale, LTCG or else STCG- Purchase Date = Date of purchase by the previous owner
- Purchase Value = Purchase Value of the previous owner
- Tax Liability = 10% under Section 112A since STT is paid on purchase and sale
Hey! Thanks for the article!
I have one doubt - would not provisions of clubbing of income tax (Section 64(1)(iv)) be applicable, and the capital gains arising from such transfer be clubbed in the hands of the sendor?
Since the shares were funded/gifted by spouse, it will attract the clubbing provisions. Therefore, capital gains arising from the sell of gifted shares in future will be taxable in the hands of transferor.
In that case isn’t the content and especially the example given in this article misleading?
If the receiver of the gifted asset is a spouse or minor child, any income that arises directly or indirectly from such asset is clubbed with the income of the sender as per Section 64(1)(iv) & Section 64(1A) of the Income Tax Act.
We have updated the same in the article to avoid any confusion. We have also changed the example since the sale of the gifted asset by the wife would be clubbed in the total income of the husband.
HI @Divya_Singhvi
I have 4 questions1.What is the tax treatment if the purchase date and purchase cost is not known. The securities being gifted in this case were purchased in physical format, converted to demat format later. The physical share certificates do not exist any more. The dematerialized shares do not show the purchase date.
- Can STT (paid while selling the shares) be clubbed with purchase cost for calculating LTCG?
- Will it be advance tax payment? how to pay the tax on such LTCG? how to show this on ITR? will this have a different ITR form?
- How does the reciever of the gift show it on IT return? what if the receiver further gifts the securities to another person in the same assessment year?
Appreciate your help
Supreeth- In cases (inherited) where the cost for which the previous owner acquired the shares cannot be ascertained, and the shares were purchased before the 1st day of April 2001, it is at the option of the assessee to take the fair market value of the asset on 1st April 2001 as Cost of acquisition.
2. No STT cannot be claimed as an expenditure as it has been specifically excluded by the IT Act.
3. No STT is different from Income Tax Payment. It will not be considered as an advance tax payment. If there are tax dues on LTCG you pay it directly through the TIN-NSDL website or while filing ITR. This will reflect under the capital gains schedule in ITR. In the case where your income includes capital gains, you are required to file ITR-2 (Assuming no business income).
- Gift from a relative is exempt and the receiver needs to disclose under exempt income irrespective of the fact that it is further gifted.
Hope this helps
Please advice on this scenario. I gift shares to my spouse and she uses that to plege and trade in f&o. Loss or Proft will be clubbed in the hands of sender or receiver (spouse)
