Gifting Shares in India: A Comprehensive Guide to Demat Account Transfers & Tax Implications

Plan Your Share Gift in India

Introduction

Do you know, in India, you can also gift your shares to someone?

Shares are something that grows in value and offers a lasting investment in someone’s future? This is what makes shares a more valuable gifting option than anything else.

We often focus on traditional presents, but here’s a unique and thoughtful way to express our affection. Gifting shares or bonds through ones demat account is a great way.

This isn’t just about handing a few shares of some company, it more about fostering financial literacy and passing on a legacy of stock investing.

Imagine an event where grandparents are gifting shares of a company with sentimental value to their grandchildren, teaching them about long-term investing. I’ve seen examples where a close friend supported his college friend by gifting shares of a promising startup. I thought, it’s a truly meaningful gesture.

So, how does one go about gifting these financial assets?

Let’s understand the process and its significance, for both the giver and the recipient.

1. Understanding the Process of Gifting Shares

Gifting shares from one demat account to another involves a straightforward process.

It can be sone through off-market trades or transfers, or even online platforms provided by your brokerage firm.

• Offline Method: The Delivery Instruction Slip (DIS). This is an off-market transfer method. It is almost like a direct transaction between a seller and a buyer. As the gifting party, you’ll need to submit a DIS to your depository participant (DP). DPs sent us our holding statements by emails (a pdf file). Open that file and the name and DP ID will be visible in the pdf file. The filled-in slip basically tells your DP to transfer securities from your demat account to the recipient’s account.
  • You must specify following details of the recipient:
    • DP ID, DP name,
    • Client ID, ISIN (International Securities Identification Number) of the shares you’re transferring.
  • Once these formalities are done, the gift actually becomes irrevocable. After the shares show up in the recipient’s demat account, they are free to manage them as they wish. They can even sell them or even gift them further.

• Online Method: Many brokerage firms today make this process even easier. They allow clients to gift shares directly from their demat accounts online. You just need to enter the recipient’s details (see above). After you initiate the transfer, your broker will send an email and SMS notification to the recipient. The recipient then has 7 days to accept the gift. The shares will stay in your demat account during this acceptance period. Once the recipient accepts, you, the sender, will get an email and SMS to confirm the recipient’s identity and authorize the transfer using your CDSL TPIN.
  • For instance, if you use Zerodha, you can do this directly on their Kite platform.
  • You also need to add the receiver as a beneficiary in your demat account if they aren’t already.
  • The shares are typically moved to the recipient’s demat account and become visible in their holdings the next day after all verifications are completed.

Now, let’s talk about the charges involved in shares transfer process.

Generally, the transfer charges are around Rs.25 per security per transaction, plus 18% GST. These are automatically debited from the sender’s trading account.

Note: You cannot gift unsettled shares or if your demat account is dormant or has a negative balance.

2. Tax Implications Related To Gifting Shares

Let’s understand it again from the giver’s and receiver’s perspective

• For the Giver (Sender): There will be no Immediate Tax. Earlier, there was something called the Gift Tax Act, but it has been abolished. So, as the sender, you are generally not liable to pay any tax on the gift. The Income Tax Act views gifts as being excluded from the definition of ‘transfer’ under Section 4712. So, capital gains tax doesn’t apply to you when you gift the shares.
• For the Receiver (Recipient): It Depends on the Relationship and Value. Now, for the recipient, the tax implications can vary. Shares are considered as a “movable property.”
  • Gifts from Relatives: This is generally Tax-Exempted. If you receive shares as a gift from a “relative”, as defined by the Income Tax Act, it’s tax-exempt, regardless of the value. Who counts as a relative? This includes your spouse, siblings, lineal ascendants (like parents or grandparents), or lineal descendants (like children or grandchildren). Also, gifts received on the occasion of your marriage or through inheritance are tax-exempt.
  • Gifts from Non-Relatives: If you receive shares from someone who is not a relative, and the fair market value of these gifted shares exceeds Rs.50,000, then the recipient will incur tax implications. This value is considered “income from other sources” and is taxed according to the recipient’s income tax slab rates. So in case of shares traded as gifts between people, you can see how the relationship matters a lot.

2.1 Capital Gains When the Recipient Sells Eventually?

If the recipient decides to sell the gifted shares, they will be liable for capital gains tax.

The crucial part here is determining whether it’s a long-term capital gain (LTCG) or a short-term capital gain (STCG).

• The holding period is calculated from the original acquisition date by the previous owner (the giver) until the date of sale by the recipient.
• The cost of acquisition for calculating capital gains will be the purchase price paid by the previous owner.

For instance, if you gift shares to a non-relative, and they sell them, they’ll pay capital gains tax based on your original purchase price and holding period.

This makes it really important to maintain proper documentation, like a gift deed, to verify the transaction in case the tax department has any questions.

3. Is a Gift Deed Mandatory for Share Transfers?

If it is mandatory to have a gift deed when shares are gifted?

While shares are classified as “movable property” under the Income Tax Act, 1961, and it’s not obligatory to execute a gift deed for transferring shares. But tax consultant sometimes advise that doing a gift deep can be very beneficial. Why?

A gift deed establishes a legal record documenting the transfer. This provides additional clarity and evidence of the transaction. This becomes useful during tax and compliance processes.

I think, if the value of gifted shares are very high (as compared to the receiver’s income), it is better to have a gift deed for future reference.

4. When Shares Are Gifted to Charitable Institutions

Beyond gifting to individuals, shares can also be donated to temples and other charitable organizations.

This is a growing trend, and it’s a wonderful way to contribute.

For instance, prominent temples like the Tirumala Tirupati Devasthanam in Tirupati and Shree Siddhivinayak Ganapati Temple in Mumbai have established demat accounts precisely for this purpose.

This became necessary because many devotees were donating physical share certificates. These physical certificates couldn’t be used once shares became dematerialized. How to prevent this type of shares loss?

If you have a demat account with CDSL (like Zerodha or HDFC Securities), you can use their EASIEST service for a completely online donation. If your demat account is with NSDL (like Kotak Securities), you might need to use the offline Delivery Instruction Slip (DIS) method.

4.1 Tax Benefits for Donations

When you donate shares to an approved charitable institution, you can potentially claim a deduction under Section 80G of the Income Tax Act.

This section allows tax deductions for contributions to certain relief funds and charitable institutions. The deduction amount can vary, up to 100% or 50% of the donated amount. The deduction percentage depends on the recipient institution.

It’s advisable to get in touch with the temple or institution’s authorities to obtain an 80G certificate for your donation.

Interestingly, the donation itself is not taxed for either the devotee or the temple trust, as it’s done at zero consideration.

If you donate “appreciated assets” (shares that have increased in value), you might avoid capital gains tax on the profit you made. Moreover, the fair market value of your gift can be counted as a deductible charitable donation.

This strategy is usually achieved by transferring the assets directly to the foundation.

However, if you have “depreciated assets” (shares that have decreased in value), it’s generally recommended to sell them first, claim a loss on the sale, and then donate the proceeds to receive the maximum tax credit.

Conclusion

Gifting shares is certainly a thoughtful and modern financial gesture. It goes beyond material possessions and truly signifies a lasting investment in someone’s future prosperity.

We just need to keep in mind that a meticulous planning and adherence to legal and tax regulations are crucial here.

Ensure you comply with all requirements, especially regarding disclosure in tax returns and proper record-keeping.

What are your thoughts on this? Have you ever gifted shares or received them? Do share your experiences in the comments below.