Gift tax is an act introduced by the Parliament of India in 1958. It was introduced to impose tax on giving and receiving gifts under certain circumstances which is specified under the act. if the value of the gift exceeds Rs.50,000 then the gift is taxed as income in the hands of the person who receives the gift under the head ‘Income from other sources’ at normal tax rates. (Refer this link for the meaning of ‘Gift Tax’: https://consultcaonline.com/index.php/2022/05/20/what-do-you-understand-by-gift-tax/)
In case of Transfer of Shares & Securities by an individual:
- Any gift whose value is upto Rs.50,000 is exempt in the hands of both the sender as well as the receiver.
- Even if the monetary value of the gift received by a close relative exceeds Rs.50,000, it would be exempt and would not be taken under Income from Other Sources.
- However, if the monetary value of the gift exceeds Rs.50,000 in case on non-relative, it is taxable under the head Income from Other Sources at the Fair market value and taxed at the respective slab rates.
And, in case of Sale of shares & securities by an individual which were earlier received as a gift :
- It is taxable in the hands of receiver under the head Income from Capital Gain.
- In case the gift had been given by any of the close relative, the taxable amount under Capital Gain would be calculated as the difference between the Sale Value as on the date of the transaction occurring and the Cost of Acquisition as on the date it was purchased by the previous owner (since FMV on the date of receiving the gift would be zero in case of relative).
- However, in case the gift has been given by any non-relative, it would be taxable under IFOS at the time of receiving the gift, and capital gain would arise only when the shares or securities are sold.
- The taxable amount under Capital Gain in case of non relative would be calculated as the difference between the Sale Value and the Fair Market value as on the date of receiving the gift.
- Capital Gain can be Long-term or short-term depending upon the date of purchase of the sender.
- If there is Short term capital gain, it would be taxable at the rate of 15% as per section 115A of Income Tax Act.
- However, based on the purchase date of the sender, if there is long term capital gain, taxability would arise at the amount exceeding Rs.1,00,000 at a rate of 10% as per section 112A.
- REPORTING: Sale of shares, ETFs, Mutual funds, etc. received as a gift would be taxable as Capital Gain under Schedule CG of ITR-2 of the taxpayer.
In case of sale of shares and securities in an HUF:
In case of Hindu Undivided Family (HUF) Business, all the members would be considered as “relatives”. However, the provision applicable for relative of an individual would not be applicable here.
In this case, if any shares or securities are transferred (as gift) from its members to the HUF, it is exempt and would not be liable to tax.
However, it is not the other way around. Any gift transferred from the HUF to its members would be liable to tax since this transaction would be suspicious and improper in the place of Karta to give any gift to its members without any personal motive.