How To Gift Equity Shares In India?

The festival of lights is only a month away, making it the perfect time to start planning for all the gifts you intend to give your loved ones.

In Diwali 2020, you may consider giving financial gifts to your family and friends. You can gift equity shares that you already own, which can be a great way to reap value from your investments to secure another's future.

Equity is an excellent addition to anybody's portfolio as it has the potential to build wealth in the long term. From Jeff Bezos to Warren Buffett to Mukesh Ambani, a major chunk of billionaires' wealth is made from the equity they own in companies.

How to gift shares in India?

Since gifting equity means transfer of shares for no monetary gains in return, it needs to be done using the "off-market transfer" mechanism.

Step 1: Filing the DIS

The donor of the shares has to fill a delivery instruction slip (DIS) and submit it to the Depository Participant (DP).

DP means an agent or an intermediary between the investor and the depository, which basically means that your DP is the firm that opened a Demat account for you.

The two depositories in India are CDSL and NDSL. As of 2012, there were 288 DPs of NSDL and 563 DPs of CDSL registered with SEBI.

To fill the DIS, you will need to ask the person you intend to gift the shares to (the receiver) for DP ID, DP name and client ID. Write these details along with ISIN (International Securities Identification Number) and the number of the shares to be transferred.

The execution date also needs to be mentioned in the slip, which is a written instruction to be submitted to your DP.

Step 2: Filing Receipt Instruction

The receiver will have to fill a receipt instruction and submit it to his/her DP. Shares received from the donor of the shares will be credited to the receiver's DP account after this receipt instruction is submitted.

Things to Note

• The details such as DP ID, the name, etc should match between the delivery instruction and receipt instruction.
• The transfer of shares will take place on the execution date mentioned by the parties.
• A copy of the two instructions will be given to the respective parties.
• Once the transfer is made, the shares are not revocable.
• If the buying client has given a standing receipt instruction, this may be ignored.

Tax implications

While it is not mandatory to execute a gift deed as shares are considered "movable property" for Income Tax purposes, you can do so to create a legal record of the transfer on a stamp paper.

Transfer to a relative (as defined by Income Tax Act), is not subject to tax.

As per the Income Tax Act, if the value of a gift is less than Rs 50,000 it will not be subject to tax even if the transfer is not being made to a relative. However, as per section 56(2)(x)(c) of the Income Tax Act, when the value of the movable property exceeds Rs 50,000, it is taxable in the hands of the receiver.

The value of the shares for tax purposes is the market value of those shares which in case of listed companies is very straightforward.

For tax purposes, a gift is the transfer of certain existing "moveable" or "immovable" property and such a transfer is made voluntarily and "without consideration" (which means for no money or equivalent in exchange for the transfer). The gift-giver will be referred to as "donor" and the receiving party is called the "donee".