How to Gift Shares to our Family Members and the Tax Implications of the same

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Are you an avid stock market investor? Do you have a sound stock market portfolio? We all know what a Nominee is – someone who gains possession of your property/investment after your time. But, what if you wanted to give your stock investments in an as-is state to someone? The first question that will arise in your mind is – “Can I really do that?” the second will be “How?” and the third will be “What will be the tax implications?”

Isn’t it???

The purpose of this article is to answer these questions…

Can we Gift Shares to our family members?

Of course YES. Do you think that I will waste my time and yours as well over something that can’t be done???

You can gift equity shares (stocks) that you own to anyone in your family. The person giving the gift is termed the donor, and the person receiving the shares is termed the donee.

Let us say, I own 100 shares of ICICI Bank and want to gift it to my brother. I will be the Donor and my brother will be the Donee. Once the transaction or should I say gifting is complete, my brother will own those 100 shares instead of me.

How to Gift Shares to our Family Members

Since we are gifting shares and not selling them, technically this transaction happens outside the market and there is no transfer of monetary instruments. Below are the steps to transfer shares held in both DEMAT as well as Paper form.

Gifting Shares – In DEMAT Form:

Step 1: The Donor initiates an off-market transaction with his Depository Participant (DP) (In other words DEMAT Account provider) by submitting a Delivery Instruction Slip (DIS) to transfer securities from his DEMAT Account to that of the Donee.

Step 2: The DIS should have the name of the Donee, details of his DP Account, the Security (Share/Stock) being transferred, ISIN Number of the company and the quantity of shares being transferred/gifted.

Step 3: The Donee must give a receipt instruction to his DP (DEMAT Account Provider) to accept these shares

Step 4: Though this step is not mandatory, it is best to execute a gift deed on a non-judicial stamp paper my mentioning the appropriate amount for legal records as well as to avoid any tax queries in future.

Gifting Shares – In Paper Form:

If the shares are in certificate form, a share transfer deed in Form 7B, filled and signed by the donor, needs to be executed and registered. The stamp duty is payable at the rate of 25 paisa for every Rs 100 of the face value, or the market value of shares prevailing on the date of the document, whichever is higher. Once the transfer deed is registered, the share transfer is complete.

Tip:

Holding shares in paper form is not only outdated, but also very hard to maintain. It is easier to maintain share holdings in electronic format in DEMAT Accounts. Converting paper shares into DEMAT is very easy and can be done for a small fee by the DEMAT Account provider. So, I would suggest, you do this before you actually think about gifting or even selling your paper form shares.

Important Note:
The details mentioned in the delivery instruction slip and receipt instruction for off-market transfer must match, otherwise the transfer will not take place.

Tax Implications of Gifting Shares

There is not much clarity about the Gift Tax laws in India. About 10 years ago, any amount received as a gift from a family member was exempt from tax, then a few years ago, the government changed it and put a ceiling of Rs. 50,000/- and then they changed it again stating that, gifts received from Blood Relatives and Family Members is exempt from tax.

So, as of now and per my understanding, if you gift Shares/Stocks to your blood relatives or family members they need not pay any tax on the gift they just received.

Who is part of this Blood Relatives or Family Members category?

The following members will fall under this category of people who need not pay taxes if you gift them Shares that you own.

• Spouse of the individual
• Brother or sister of the individual
• Brother or sister of the spouse of the individual
• Brother or sister of either of the parents of the individual
• Any lineal descendants of the individual or his/her Spouse. Ex: Children, Grand Children, Great Grand Children etc...
• Any lineal ascendant of the individual or his/her Spouse. Ex: Parents, Grand Parents etc...
• Spouse of the Brother/sister of individual or brother/sister of spouse of individual

Does this mean I cannot gift/transfer shares to anyone else?

Of course Not. You can gift/transfer your shares to people who are not part of your family – say Friends. However, if you do so and if the value of the shares being gifted is more than Rs. 25,000/- it will be taxed. The amount in excess of the Rs. 25,000/- limit will be considered Taxable Income for the person receiving your gift and will be taxed accordingly. You can learn more about the Indian Income Tax by Clicking Here

Important Note:
Though the shares are non-taxable in the hands of the receiver when gifted by a family member, they need to pay capital gains tax when they eventually sell it. So, if you decide on selling the shares that I gifted you, you need to pay capital gains tax on it, as per the prevailing tax laws at the time of selling the shares.

Some Important Points to Remember:

a. DEMAT Providers may charge a small fee for effecting this transfer of shares from person A to person B. The fee will vary based on who your DEMAT Provider is.
b. Registering the gift deed is a great idea if the value is significant (Over Rs. 10,000/-) to minimize tax complications for the receiver of the gift
c. If you hold shares in paper form which you wish to transfer to any of your family members, converting them to DEMAT form would be a better idea
d. Though you can gift shares to non-family members too, it will be taxable if the value is over Rs. 25,000/-

Hope you found this article useful…

Happy Stock Market Investing or should I say Stock Gifting!!!