Gifting Shares? Know the Tax Rules First

Thinking of gifting shares to your kids, spouse, or friends? Here's what the Income Tax Department wants you to know before you press "Transfer."

“It’s Just a Gift... Why Should I Pay Tax?”

Great question — and you're not alone in asking.

Imagine this:
You transfer 100 shares of a company to your daughter.
You don’t get any money. She doesn’t pay you either. It’s just a gesture of love, a transfer of wealth across generations.

Sounds innocent, right?
Well, to the tax department, it depends on who you’re gifting it to — and what they do with it later.

First, Let’s Clear the Basics

Gifting of shares is not taxable for the person who gives (the donor).
But the person who receives (the recipient) — might have to pay tax.

Now let’s break that down.

If You Gift to a “Relative” — No Tax!

According to Indian tax laws, if you gift shares to a defined list of relatives, it’s completely tax-free.

Who counts as a “relative”?

• Spouse of the individual

• Siblings (your own and your spouse’s) and their respective spouse

• Parents

• Children

• Grandchildren

• In-laws

• Any lineal ascendant or descendant (including their respective spouses) of the individual any lineal ascendant or descendant (including their respective spouses) of the spouse of the individual

In all these cases, no tax is payable on receiving gifted shares, no matter the value.

So if you gift ₹10 lakh worth of shares to your son — it’s 100% tax-free for him.

If You Gift to a Friend or Non-Relative — Caution!

This is where tax kicks in.

Let’s say you gift ₹1.5 lakh worth of shares to your college friend.

According to Section 56(2)(x) of the Income Tax Act:
If the value of the gift exceeds ₹50,000, and the person is not a relative, the entire amount becomes taxable as “Income from Other Sources” in the recipient’s hands.

So in this case, the friend would have to declare ₹1.5 lakh as income and pay tax as per their slab.

When Gifts received are exempt from tax?

Under the following situations, gifts received are not taxable in the hands of the recipient irrespective of monetary value:

Gift received :

• From relatives as defined above

• On the occasion of the marriage,

• Under will/by way of inheritance.

• In contemplation of the death of the payer.

• From local authority. A fund, foundation, university, other educational institution, or other medical institution, hospitals, or any trust or institution defined in Section 10(23C), any trust or institution registered under section 12AA.

What About Capital Gains When They Sell the Shares?

This is the most confusing part for many, so stay with us.

The person who receives the gift inherits your holding period and your purchase cost.

Example:

• You bought 100 shares of Infosys at ₹800 in 2019.

• You gift them to your spouse in 2024 when the price is ₹1,500.

• She sells them at ₹1,600 in 2025.

Here’s how it will be taxed:

• Cost of acquisition: ₹800 (your cost)

• Holding period: Since 2019 (your holding period carries forward)

• Capital gains: ₹1,600 - ₹800 = ₹800 per share

• Since holding is more than 12 months, it’s taxed as long-term capital gain (LTCG) — taxed at 10% (above ₹1 lakh exemption).

Good news: She won’t have to pay tax when receiving the gift, but only when she sells the shares — and using your cost & timeline.

Bonus Tip: Always Use a Gift Deed (Even for Shares)

For clarity (and in case of scrutiny), create a simple gift deed — especially for large transfers.
It doesn’t have to be notarized, but it’s good practice to keep it documented.

Summary: The Gift Tax Rulebook, Simplified

Still Wondering If You Should Gift Those Shares?

• If it’s to a family member — go ahead.

• If it’s to a friend — keep it below ₹50,000 per year to avoid tax.

• And always document it!

  Need help with tax planning or investment structuring?

I hope you liked this email. Whether it’s mutual funds, PMS, or AIF, our team helps simplify your financial life so you can spend more time enjoying what matters most — your family and peace of mind, not Excel sheets.

Warm regards,

Tejas Lakhani