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

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

A gift may be in the form of money, immovable or immovable property, shares, ETFs and much more. Understanding the tax implications and disclosing income tax returns along with proper documentation is important. Here is the basic breakdown to help you understand the scenarios where and when income tax is applicable on the gifting of shares:

For the Sender (Gifter)

  • No Tax on Transfer: The abolished Gift Tax Act ensures the sender doesn't pay tax on gifting shares.
  • Capital Gains Exemption: Gifting shares is exempt from capital gains tax as "transfer" under Section 47 excludes gifts.

For the Receiver (Giftee)

  • Tax-Exempt Gifts (Up to ₹50,000): Gifts worth ₹50,000 or less are exempt from tax.
  • Tax on Gifts Exceeding ₹50,000: Gifts above ₹50,000 are considered "Income from Other Sources" (IFOS) and taxed according to income tax slabs.
  • Exempt Gifts from Relatives: Shares received from relatives are exempt under Section 56(2)(vii).
  • Other Tax-Exempt Gifts: Gifts received on marriage, inheritance, or in contemplation of death are also exempt under Section 56(2)(vii).

Taxation on Selling Gifted Shares

  • Capital Gains Tax Applies: When the receiver sells the gifted shares, capital gains tax is applicable.
  • Holding Period: The holding period is calculated from the original purchase date by the sender (gifter) to the sale date by the receiver.
  • Long-Term Capital Gains (LTCG): If held for more than 1 year (based on the sender's purchase date), LTCG rates apply.
  • Short-Term Capital Gains (STCG): If held for less than 1 year (based on the sender's purchase date), STCG rates apply.
  • Tax Calculation: The tax liability is determined based on the nature of the capital asset (LTCG or STCG) and applicable tax rates.

Summary:

 

Transaction

Sender

Receiver

Gift of Shares

Not taxable

Exempt Income (up to ₹50,000) or IFOS Income (abov​e ₹50,000)

Sale of Shares

Not taxable

Capital Gains Tax

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