Are You Planning To Gift Shares This Diwali? Here’s The Process And Applicable Taxes

You can gift shares to your friends and relatives through both the online and offline processes. Here’s the way to go about it and the applicable tax and compliance laws to be taken care of
Are You Planning To Gift Shares This Diwali? Here’s The Process And Applicable Taxes
Are You Planning To Gift Shares This Diwali? Here’s The Process And Applicable Taxes

Diwali is considered an auspicious day wherein the power of light prevails over darkness, and people celebrate this victory by exchanging gifts and other seasonal greetings with their loved ones. 

But did you know you can also gift stocks to your relatives and friends, both in a digital or offline process. All you would need is a demat account (for both the receiver and yourself), some additional information, and a knowhow of some technical aspects. 

So, here’s a rundown of the process of gifting stocks.

Things To Know

In India, there are two depositories – the Central Depository Services (India) Limited (CDSL) and National Securities Depository Limited (NSDL). 

  • To start with, first check your depository provider. Depending upon your depository, you will have to first register with their platform for online access. 
  • Check your inbox or ask your depository participant (DP) for the delivery instruction slip (DIS), which might be your stock broker or anybody else specified at the time of opening your stock broking account.
  • Make a note of your beneficial ID (BO ID) and your friend/relatives’ id or to whom you will gift those stocks. You will find this ID in your stock broker’s welcome note, depository welcome note, or you might have also received this information by courier. 

CDSL’s BO ID is a 16-digit number; NSDL comprises 14 digits.

How To Gift Stocks?

Online Process Using Stock Broker’s Interface

Step 1: You will need to fill up the DIS form and submit it to your stock broker who has to support the stock gifting infrastructure. You need not fill up the physical DIS form, since some stock brokers like Zerodha, Angel One, and others also support e-DIS feature.

Step 2: After you have filled up your DIS or e-DIS form and included details of your friends’ demat BO ID and other required details, an intimation from the stock broker’s side will be provided.

Step 3: After receiving such intimation, the person receiving such gifted stocks must fulfil certain conditions. 

According to Hemant Sood, founder, Findoc, a Delhi-based stock broking company, the donee must check whether they have a TPIN (a numeric transaction pin) from CDSL or not. 

If they don’t have it, then they must use their BO ID to generate a TPIN on CDSL’s website and then log in to their trading account and authorise the gift receiving transaction using both TPIN and one-time password (OTP).

For Zerodha, there is a specified 7 days’ time limit for the entire transaction to be completed. Make sure to check with your respective DP about what their time limit is for completing the gift transaction.

There is also another online share transfer process in CDSL, but for that you will need to add the recipient’s BO ID as your trusted BO ID in your demat account. But you can only use this method if the person you are gifting to is your immediate family member as specified, and not just a friend.

Offline Process Using DIS

Palka Arora Chopra, senior vice president, Mastertrust, a BSE-listed financial services company, says that this method is an offline demat transfer method, and involves the gift donor to fill up and submit a DIS form along with the details of the shares to be gifted (ISIN number, donee demat account details, and others). 

This DIS will have to be then submitted to their DP, and then the DP will transfer the shares. The DP might also levy some charges.

After this is done, the recipient of such gifted shares has to submit an instruction to their DP, after which the facilitation of such a transaction of transfer of shares can be executed.

The information shared in the DIS by the donor will be matched with the information shared with done, and then, the share transfer transaction will be executed, Chopra says.

How Will Taxes Apply Here?

Gift Tax Applicable For Friends Not Relatives: Aarti Raote, partner, Deloitte India, says that gifts in cash or kind in excess of Rs 50,000 is liable for tax in the hands of the recipient, unless it is received from specified relatives. The tax position for gifts to non-resident friends also remains the same and such gift would be liable to tax in India as well even if the friend is not a resident of India.

If Shares Are Gifted For Friends’ Marriage No Gift Tax Is Applicable: If someone is giving stocks as gifts to their friends, then that would be subject to tax unless the value of the gift is less than Rs 50,000 or “if the gift is on the occasion of a friend’s marriage,” adds Raote.

Creation Of Gift Deed Is Advisable To Avoid IT Department Scrutiny: CA Tarun Kr Batra, senior partner, R S P H & Associates, a Delhi based CA firm, advises people gifting stocks among themselves to “create a gift deed” so as to maintain proper records in case they get an income tax query in future. "The gift deed should be executed in the home state of the gift giver," added Batra.

So in essence, while receiving a gift, the donee will be subject to tax under the head- income from other sources, unless it is received from a relative or during marriage or the amount of such gift does not exceed Rs 50,000. However if the donee sells those gifted shares then capital gains will be applicable under income tax laws.

How To Calculate The Tax If The Gifted Shares Are Sold?

Mihir Tanna, chartered accountant and associate director of SK Patodia and Associates, a Mumbai-based CA firm, explains, that as the original owner (person giving gift) has not paid any tax even after appreciation in value of asset (which is given as gift), tax will be recovered from gift recipient in future when said asset is transferred.

"Accordingly, when a gift recipient transfers assets in the future, the cost at which the original owner (relative who gave the gift) acquired the asset, will become the cost for the recipient and the holding period of the original owner will also be considered," Tanna further added.

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