Gifting is a prominent part of Indian culture. During weddings and birthdays, people tend to exchange gifts as a way of expressing love. In recent years, the pattern of gifting has evolved. People are now moving beyond traditional items and choosing more meaningful, long-term gifting options. As a result, financial gifting is emerging as a popular trend. Parents and grandparents are willing to pass on their legacy through shares, mutual funds and other assets.
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However, gifting also comes with certain tax implications. While gifts received on occasions like weddings or from specified relatives, such as parents, are generally tax-free, there are limits on exemptions for other situations. Additionally, taxation varies depending on the type and value of the gift.
Gifting Shares To Relatives
Shares are considered a long-term asset and may not show results in a short period due to their unpredictable nature. They are linked to the economy and overall market conditions, which makes them volatile. Because of this, it is ideal to hold them for a longer duration. This makes them a suitable gifting option for grandchildren or relatives who can benefit from them in the future. A longer holding period increases the potential for growth of such assets.
How To Gift Shares?
Gifting shares involves transferring ownership from your demat account to the recipient's account through your broker. Both the parties must have active demat accounts. On online platforms, the process is simple and can usually be completed in just a few clicks. One can find this option in their demat account and select the shares and quantity they want to give. Once confirmed, the broker platform will typically send a request to the recipient to accept the gift.
Tax Implications For Gifting Shares
Gifts are not treated as transfers under the Income Tax Act, so the sender does not need to pay any capital gains tax. Items like shares, ETFs, mutual funds, and jewellery are treated as movable property in India. If such gifts are received without consideration and their value exceeds Rs 50,000, the recipient may need to pay tax. The extra amount is treated as income and taxed as per the individual's slab rate under “Income from Other Sources.”
However, there are key exceptions. Gifts received from specified relatives, on the occasion of marriage, or through inheritance are fully tax-free. This means that gifts received from a specified relative, such as a spouse, siblings, or lineal ascendants and descendants, including parents, grandparents, and children, regardless of the amount involved, remain tax free in India.
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When selling shares received as a gift, they are treated like regular shares for taxation. In this case, capital gains are calculated based on the holding period. This holding period will be calculated based on the original owner's holding time. Currently, if held for more than one year, capital gains are considered long-term and taxed at 12.5%. Meanwhile, if held for less than 12 months, the gains are taxed at 20%.
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