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The transfer is a process whereby one person delivers to another any property. The delivery of property according to Income Tax Act, 1961[1] will attract tax liability. Section 2(47) defines transfer as sale, relinquishment, extinguishment, conversion into stock-in-trade, compulsory acquisition, or extinguishment of any right.
A gift is considered as delivery of movable property (Listed & Unlisted shares) and immovable property from one person to another without consideration. An individual is entitled to transfer his share to another person subject to following due process of law. This article will discuss in detail the tax implications of gifting shares.
According to the Income Tax act, 1961, a Gift means any immovable and movable property received without consideration and against inadequate consideration. The meaning of movable ad immovable property can be understood as:
The shares and securities are considered movable property. Section-56 of the Income Tax Act, 1961, discusses income from other sources. The transfer of shares takes place from two sides (i.e. Sender and the receiver); therefore, the tax implication shall be understood from both sides.
According to Section 2(14) of the IT Act 1961, shares are a capital asset. Any gain earned on the transfer of shares shall be regarded as capital gain; hence, any capital gain shall be liable for taxation. But according to Section 47, certain transactions are excluded from transfer.A gift is one of the elements that is excluded from the definition of transfer. Therefore, the tax will not be deducted from the transferor’s hands on the transfer of shares.
However, gifting shares is a capital gain on account of the transferee, and he is not excluded from taxation, provided that the amount of share transferred is more than the specified amount. The tax implication from the side of the transferee is discussed below.
Tax Implication on behalf of the transferee
According to Section 56, gifting shares on account for share transmission are liable for exemption if:
The amount on which tax is to be calculated is enumerated below:
Gifting shares or receiving shares in Gift from/to a relative is exempted from the tax. Section 56(2) (vii) provides that anyshares or securities received from a relative are liable to be exempted from the tax. According to the act, the word “Relative” includes:
Any shares received on account of the below-mentioned occasions are liable to be exempted from tax:
The valuation of the share, when received by a non-relative, will be:
The process for transfer of shares (assuming the shares are in DEMAT form) includes:
The transfer of shares is considered movable property, and gifting shares are exempted from tax, but there are some occasions where the value of the amount transferred is taxable. From the above article, we can analyse that gifting shares to a non-relative are taxable. If the amount of securities transfer red exceeds the value of Rs 50,000, then the whole amount exceeding Rs 50,000 is liable for taxation. Hence, any amount of shares given above Rs 50,000 is liable for exemption if the transferee is a relative of the transferor.
Read our Article: Gift of Shares from Resident to NRI
An Advocate by profession, Nikhil Mogha holds experience in the field of Business and Securities law. He has done his Masters of Law in Corporate Law from Guru Gobind Singh Indraprastha University, New Delhi. He is also versed with the drafting and research work in the field of Company Law, Banking Laws and Contract Laws.
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