Know about gifting of listed equity shares

Gifting is a way to show that you care about someone. And what a better gift than the gifting of your favourite equity stocks which shows you care about someone’s future. 

Gifting of equity shares involves the transfer of shares from the doner (one who is gifting) to the donee (the receiver of the gift) without any monetary transaction in return. The transfer of equity shares offered as gifts happens through an off-market transaction, i.e. between depository and depository participant without involving stock exchange. Shares can be gifted only in the Demat since 1 April 2019. 

Let us understand the process of transfer of shares for gifting.

Step 1- Donor to submit DIS (delivery instruction slip)

The donor shall be submitting a DIS instruction slip to his Demat account service provider, also known as depository participant (DP). The DIS should contain details of the ISIN code of the shares, DP ID, Client ID, DP name of the donee or receiver. The slip should also contain the instruction regarding the number of shares under transfer and the date on which the share transfer should be executed. 

Step 2- Donee to submit receipt instruction 

The donee/receiver of the equity shares has to submit an instruction of receipt of the shares to his depository participant (DEMAT account provider) for receiving the shares. Details like DP ID, name, etc. should be mentioned to facilitate the receipt of the shares from the doner’s Demat account.  

Step 3- Execution of instructions.

After receipt of DIS or receipt instructions, the details mentioned both the delivery instructions and receipt instructions are tallied which must match. Shares received from the donor will be credited to the receiver’s DP account after the submission of the receipt instruction on the date of execution as mentioned.

Also, it is to be noted that once the transfer is executed, the shares cannot be revoked. 

What is the tax liability in the hands of the receiver on receipt of gifted equity shares?

In case the donee is a relative as per income tax act which includes spouse, siblings of self/spouse, children, linear ascendants and descendants of self/spouse, etc., the gift received is not taxable, irrespective of the value of the shares transferred. 

In case the shares are gifted to someone other than relatives as mentioned in the Income Tax Act, the same is tax-exempt if the value is less than Rs 50,000. For the valuation of the shares, FMV is to be considered. However in case, the FMV of the shares gifted is more than Rs 50, 000, the transfer gets taxed in the hands of the receiver under the head income from other sources.

Do you have to execute a gift deed for transferring equity shares?

Shares are considered as “movable property”, as they can be easily transferred through Demat. As for movable property, it is not necessary to execute a gift deed. However, to create a legal record and for convenience for future proceeding if any, it is advisable to execute a gift deed on an appropriate stamp paper.

Does the income received from the shares clubbed in the hands of the donor?

In case of income arising from shares gifted to a spouse or minor child, provisions of clubbing of income shall apply. Hence, any income like dividend received by the spouse/minor child on the gifted shares will be clubbed along with other income of the donor. 

However, in the case of an adult child, the same stands taxable in the hands of the donee and not the doner. 

For any clarifications/feedback on the topic, please contact the writer at jyoti.arora@cleartax.in