Tax on Gift of Shares in India: The Complete Guide

Gifting shares looks deceptively simple on the surface. No sale, no consideration, no capital gains tax in the donor’s hands. But the transaction creates a layered tax position that sits on the books for years, because it is the recipient who eventually realises the value, and it is the recipient who must navigate the full tax arithmetic at that point. The rules governing gifts of shares span Section 56(2)(x), Section 47, and Section 49 of the Income Tax Act 1961, with the Budget 2024 rate overhaul now fully in force for FY 2025-26 and FY 2026-27. Add a non-resident to the picture and FEMA compliance joins the stack. This guide covers the complete picture, what gets taxed, when, in whose hands, and at what rate, so you can structure the gift cleanly.

Is there any tax on the person who gifts shares in India?

There is no tax on the person who gifts shares. The Gift Tax Act was abolished in 1988, and Section 47(iii) of the Income Tax Act 1961 expressly excludes gifts from the definition of “transfer.” Since capital gains require a transfer, no capital gains tax arises in the donor’s hands at the time of gifting, regardless of the value of the shares or whether they have appreciated substantially. Tax is triggered only in the recipient’s hands, either at the time of receipt (under Section 56(2)(x)) or at the time of eventual sale (under the capital gains provisions).

Tax in the donor’s hands: what the law says

Section 2(14) of the Income Tax Act classifies shares as capital assets. Capital gains arise on the transfer of a capital asset. Section 47 carves out a list of transactions that are not treated as transfers, and gifts fall squarely within Section 47(iii).

The Bombay High Court confirmed this position in Jai Trust vs. Union of India, where the court held that gifting shares held as a capital asset attracts no capital gains tax in the hands of the transferor, since there is no monetary consideration and therefore no profit or gain to compute.

One critical exception applies: ESOPs. Under Section 17(2)(vi) of the Income Tax Act 1961, shares allotted or transferred by an employer to an employee free of cost or at a concessional rate are not treated as a gift, they are treated as a perquisite under the head “Salaries.” The taxable value is the fair market value of the shares on the exercise date minus the exercise price paid by the employee. This perquisite tax applies at slab rates, with TDS deducted by the employer under Section 192. For DPIIT-recognised eligible startups, Section 192(1C) permits deferral of TDS to the earliest of 48 months from the assessment year, cessation of employment, or the date of sale.

Tax in the recipient’s hands at the time of receipt: Section 56(2)(x)

The recipient is not automatically exempt. Section 56(2)(x) of the Income Tax Act treats the receipt of shares without consideration (or for inadequate consideration) as income from other sources in the recipient’s hands, subject to one important condition: the fair market value of the shares received must exceed ₹50,000.

The mechanics work as follows:

• If shares are received without any consideration and the FMV exceeds ₹50,000, the entire FMV is taxable in the recipient’s hands at applicable slab rates.
• If shares are received for inadequate consideration (say, at a discount to FMV) and the difference between FMV and consideration exceeds ₹50,000, the difference is taxable.
• If the FMV is ₹50,000 or below, no tax arises under Section 56(2)(x).

The FMV threshold of ₹50,000 is a per-transaction limit, not an annual aggregate. A series of small gifts from the same person can each fall under the threshold individually, though gifts aggregated from all persons in a financial year where the total exceeds ₹50,000 also trigger the provision.

Table 1: Section 56(2)(x): taxability grid for gifted shares

Scenario	Taxable amount	Tax rate
Listed shares received as gift, FMV ≤ ₹50,000	Nil	Not applicable
Listed shares received as gift, FMV > ₹50,000, from a relative	Nil (exempt)	Not applicable
Listed shares received as gift, FMV > ₹50,000, from a non-relative	Entire FMV	Slab rates
Unlisted shares received for consideration below FMV, difference > ₹50,000	FMV minus consideration	Slab rates
Unlisted shares received on occasion of marriage, any value	Nil (exempt)	Not applicable
Shares received by inheritance or will	Nil (exempt)	Not applicable

Who qualifies as a “relative” under Section 56(2)(x)?

This is where most founders and families get it wrong. The definition of “relative” for Section 56(2)(x) purposes is narrower than everyday usage. The specified relatives are:

• Spouse of the individual
• Brother or sister of the individual
• Brother or sister of the spouse of the individual
• Brother or sister of either parent of the individual
• Any lineal ascendant or descendant of the individual
• Any lineal ascendant or descendant of the spouse of the individual
• Spouse of any person listed above

Cousins, aunts, uncles, nephews, and nieces (common categories in joint family structures) are not covered. A gift of shares worth ₹5 lakh to a cousin will trigger a full ₹5 lakh taxation in the cousin’s hands at slab rates, even if the intent is a family wealth transfer. The Income Tax Act 2025 has clarified that lineal ascendants and descendants include both maternal and paternal relatives, which resolves an older ambiguity.

Gifting to a spouse: the Section 64 clubbing trap

Gifting shares to a spouse is exempt under Section 56(2)(x). No tax arises in the spouse’s hands at the time of receipt. This is where most founders stop the analysis, and where the planning goes wrong.

Section 64(1)(iv) of the Income Tax Act provides that any income arising from an asset transferred to a spouse without adequate consideration is clubbed back into the transferor’s income. Capital gains on shares count as income. So when the spouse sells the gifted shares, the gain is not taxed in the spouse’s hands, it is taxed in the donor’s hands, at the donor’s slab or capital gains rate.

The practical consequence: gifting listed shares worth ₹1 crore to your spouse before an exit saves nothing on the capital gains arising from those shares. The gain comes back to you under Section 64. The only situations where spousal gifting is clean are where the asset itself generates no income (which is not the case for shares that will be sold) or where the transfer was made before the marriage.

Clubbing does not apply to lineal relatives such as parents or adult children. Gifting shares to a parent or an adult child who is in a lower tax bracket, and who subsequently sells, can legitimately shift the capital gains to a lower slab, provided the recipient is not a minor.

For minor children, Section 64(1A) clubs the minor’s income with the income of the higher-earning parent. Gifting shares to a minor child does not achieve any tax saving on the capital gains that arise when those shares are eventually sold.

How is fair market value determined for gifted shares?

Rule 11UA of the Income Tax Rules 1962 prescribes the FMV calculation methodology. The approach differs depending on whether the shares are listed or unlisted.

Listed shares: FMV is the lowest traded price on the recognised stock exchange on the date of transfer (or the immediately preceding date if the shares were not traded on that date). For shares traded on multiple exchanges, the lowest price across all exchanges applies.

Unlisted shares: Two accepted methods are available under Rule 11UA.

The Net Asset Value (NAV) method uses the book value of the company’s assets and liabilities as per the latest audited balance sheet. The formula is:

FMV = (A – L) / (PE + EPC + RS) x PV

Where A = book value of all assets (excluding fictitious assets, advance tax, TDS/TCS receivable, advance/deferred tax asset, and self-generated goodwill); L = book value of all liabilities; PE = paid-up equity share capital; EPC = equity shares pending allotment on conversion of preference/debentures; RS = right shares; PV = paid-up value per equity share.

The Discounted Cash Flow (DCF) method uses projected cash flows and is available where the company can produce five-year projections certified by a merchant banker or a Chartered Accountant. For transactions involving non-residents, a SEBI-registered Category I Merchant Banker’s certificate is required, and the valuation must be dated within 180 days of the transaction.

For unlisted preference shares, FMV is the sum of the present value of expected dividends, redemption premium, and face value, discounted at the applicable rate.

A critical risk: if the FMV report is prepared after the transaction date rather than before or on the date of transfer, tax authorities can challenge the valuation during assessment. Always commission the report before execution.

What are the capital gains tax implications when the recipient sells the gifted shares?

Receiving shares as a gift defers the tax, it does not eliminate it. When the recipient eventually sells the gifted shares, capital gains tax applies. Two specific rules determine the computation.

Cost of acquisition: Under Section 49(1) of the Income Tax Act, the cost of acquisition in the hands of the recipient is the same as the original purchase cost paid by the donor (or the previous owner). If the donor had bought the shares for ₹10 per share and they are now worth ₹500, the recipient’s cost of acquisition is still ₹10. There is no step-up to FMV at the time of the gift.

Holding period: Under the Explanation to Section 2(42A), the recipient’s holding period includes the period for which the shares were held by the donor. If the donor held the shares for 8 months before gifting, and the recipient holds them for 6 months before selling, the combined holding period is 14 months, which qualifies as long-term for listed equity shares.

Table 2: Capital gains tax rates applicable for FY 2026-27

Asset type	Holding period (long-term threshold)	LTCG rate	STCG rate	Notes
Listed equity shares (STT paid)	More than 12 months	12.5% above ₹1.25 lakh (Section 112A)	20% (Section 111A)	Budget 2024 rates in full force; Budget 2025 and Budget 2026 made no changes to these rates
Unlisted equity shares	More than 24 months	12.5% (Section 112)	Slab rates	No ₹1.25 lakh exemption for unlisted; 12.5% rate replaced the earlier 20% w.e.f. 23 July 2024; indexation removed
Equity mutual fund units	More than 12 months	12.5% above ₹1.25 lakh	20%	Same as listed equity
Preference shares (unlisted)	More than 24 months	12.5%	Slab rates	Same as unlisted equity post-July 2024

The Finance (No. 2) Act 2024, effective for transfers on or after 23 July 2024, increased STCG on listed equity from 15% to 20%, increased LTCG from 10% to 12.5%, raised the LTCG annual exemption from ₹1 lakh to ₹1.25 lakh, and eliminated indexation for unlisted shares acquired after 23 July 2024. For unlisted shares acquired before 23 July 2024, the taxpayer can choose between 12.5% without indexation and 20% with indexation, whichever results in lower tax.

Can the recipient eliminate the capital gains using Section 54F?

Yes, in specific circumstances, and this is the most underused planning angle in family share transfers.

Section 54F of the Income Tax Act allows a taxpayer to claim full exemption from long-term capital gains if the entire net sale consideration from the sale of a capital asset (other than a residential property) is reinvested in a new residential house. The purchase must happen within one year before or two years after the sale, or construction must be completed within three years. The exemption is proportionate to the amount invested if only a part of the consideration is reinvested.

Conditions that must be satisfied: the recipient must not own more than one residential house on the date of sale (other than the one being purchased), and the reinvestment cap is ₹10 crore.

The planning logic: gifting shares to a parent or adult child who has no residential property, and who then sells those shares and reinvests the proceeds in a house, can eliminate the LTCG entirely under Section 54F. This stacks with the income-splitting benefit that already comes from the recipient being in a lower tax bracket. The combined outcome, zero Section 56(2)(x) tax on receipt (relative exemption), and zero LTCG on sale (Section 54F reinvestment), is achievable and legally clean, provided the documentation is tight and the holding period is satisfied.

This does not work for spousal gifts because of Section 64 clubbing. The LTCG would be attributed back to the donor, and the donor must then satisfy the Section 54F conditions independently.

Does the Section 87A rebate apply to capital gains from gifted shares?

No. The Section 87A rebate (which provides relief up to ₹60,000 under the new tax regime for FY 2026-27) does not apply to capital gains taxed under Section 111A (STCG on listed equity) or Section 112A (LTCG on listed equity). Even if the recipient’s total income is below ₹12 lakh, LTCG above ₹1.25 lakh is fully chargeable. Capital gains from unlisted shares taxed at slab rates may, however, qualify for the rebate, since they are treated as ordinary income.

How does gifting unlisted shares of a private limited company work?

For unlisted shares, particularly in a privately held startup or family-owned company, the compliance stack is more layered than for listed securities.

The transfer requires a share transfer deed in Form SH-4 under Rule 11 of the Companies (Share Capital and Debentures) Rules 2014. The company’s board must approve the transfer (unless the Articles of Association restrict or waive this requirement), and the name of the new holder must be entered in the register of members within 30 days of passing the board resolution.

From September 2024, the Ministry of Corporate Affairs mandated dematerialisation of shares for all non-small private limited companies. This means share transfers, including gifts, must increasingly happen through demat rather than physical Form SH-4 for companies that have completed dematerialisation.

Section 50CA of the Income Tax Act applies if the gift is at a price lower than FMV. In that case, the donor is deemed to have transferred the shares at FMV for computing capital gains. Since a gift involves zero consideration, Section 50CA can technically apply to the donor if the transfer is re-characterised as a sale. Maintaining clear documentary evidence of the genuineness of the gift (gift deed, board resolution, demat transfer records, absence of any counter-consideration) is essential to protect against this.

Table 3: Documentation required for gift of shares in a private limited company

Document	Purpose	Who prepares it
Gift deed	Establishes donor’s intent, voluntariness, and absence of consideration	Donor, drafted by lawyer
FMV valuation report under Rule 11UA	Establishes fair market value for Section 56(2)(x) assessment	CA or SEBI-registered Merchant Banker
Form SH-4 (share transfer deed)	Mandatory form for off-market transfer	Donor signs; company files
Board resolution	Company’s acceptance of transfer	Company Secretary / Board
Updated register of members	Official shareholder record	Company Secretary
Demat transfer instruction	For dematerialised shares	Donor’s depository participant

What happens when one co-founder gifts shares to another?

Co-founder share transfers framed as gifts are an area that has drawn scrutiny from assessing officers. The key question is whether the transfer is a genuine gift or a disguised sale. The markers that invite scrutiny include:

• Transfer between arm’s-length parties (co-founders who are not relatives as per the statutory definition) where the FMV of the shares is significant
• Side letters, future obligations, or revenue-sharing arrangements that could constitute indirect consideration
• Transfers timed around investor negotiations, vesting cliffs, or restructuring events

If an assessing officer concludes that there is indirect consideration, the entire transaction can be re-characterised as a sale. In that case, Section 50CA applies in the donor’s hands (deemed sale at FMV), and Section 56(2)(x) applies in the recipient’s hands. The combined tax hit can be substantial.

The safest approach is a clean gift deed, absence of any linked obligation, and a Rule 11UA valuation report prepared contemporaneously. Where a co-founder transfer is genuinely value-linked (one founder buying out another’s stake at below-market rates), it is better to structure it as a transfer for consideration at FMV than to call it a gift and risk re-characterisation.

NRI and cross-border implications: FEMA layer

When the donor or recipient is a non-resident Indian (NRI), the Foreign Exchange Management Act 1999 and the Foreign Exchange Management (Non-Debt Instruments) Rules 2019 come into play alongside the income tax rules. The tax exemption under Section 56(2)(x) does not satisfy the FEMA compliance requirement, both must be addressed independently.

Key rules for cross-border gifts of shares:

• A resident Indian can gift shares of an Indian company to a relative who is an NRI under the Liberalised Remittance Scheme (LRS). The aggregate limit is USD 250,000 per financial year across all LRS transactions (gifts, education, investments, travel). The gift must be routed through authorised dealer banks.
• An NRI can gift shares of an Indian company to a resident Indian without FEMA restrictions, provided the shares were originally acquired on a repatriable basis (NRE route). Shares purchased through the NRO route require RBI approval before gifting back to a resident.
• An NRI can gift shares to another NRI without prior RBI approval, provided the transfer complies with sector-specific FDI limits and pricing guidelines under the NDI Rules.
• Where an unlisted company’s shares are gifted between a resident and a non-resident, Rule 11UA FMV and RBI pricing guidelines may both apply, and the valuation reports required under each regime must be obtained separately.

For share buybacks, Budget 2026 reversed the treatment from deemed dividend back to capital gains effective from FY 2026-27, but this does not directly affect the gift of shares analysis.

NRIs who receive gifted Indian shares are taxed on any subsequent sale as non-residents. For listed shares, TDS at 12.5% (LTCG) applies on sale through a broker, with the net amount repatriable from the NRE/NRO account subject to the USD 1 million per financial year cap with Form 15CA/15CB documentation.

Stamp duty on gift of shares: what is actually payable?

Section 9B of the Indian Stamp Act 1899 charges stamp duty on the “sale or transfer or reissue of securities for consideration.” Since a gift involves zero consideration, the charging provision does not technically apply, and no stamp duty is payable on a gift deed for shares.

For demat share transfers (listed or unlisted companies that have completed dematerialisation), the depository (NSDL or CDSL) collects stamp duty at 0.015% of the market value of the shares at the time of transfer. This is a uniform national rate introduced by the Finance Act 2019 amendments effective 1 July 2020. The donee (recipient) bears this stamp duty, which is collected electronically by the depository at the time of processing the transfer instruction.

For physical shares (now increasingly rare, given mandatory dematerialisation), the legal position on stamp duty for gift transfers is debated. The general position, supported by the FAQ issued by the Government of India on the Indian Stamp Act amendments, is that off-market transfers without consideration, including gifts, do not attract stamp duty.

A separate gift deed is not legally mandatory for the transfer to be valid; Form SH-4 suffices under Rule 11 of the Companies (Share Capital and Debentures) Rules 2014. However, a gift deed on non-judicial stamp paper is strongly recommended to establish the intent, voluntariness, and relationship between the parties, particularly for high-value transfers or where tax proceedings may arise.

Common mistakes that cost recipients time and money

1. Misidentifying who counts as a “relative.” Cousins, aunts, uncles, nephews, and nieces are not relatives under Section 56(2)(x). Founders who transfer shares to extended family members without confirming the statutory definition risk a full FMV tax demand on the recipient. Check the definition against the exact list in the Explanation to Section 56(2)(x) before executing.

2. Getting the FMV valuation report dated after the transfer. A Rule 11UA valuation report dated after the transfer date cannot establish the FMV as at the date of transfer. Assessing officers routinely reject backdated or post-transaction valuations during scrutiny assessments. The report must be commissioned and finalised before or on the date of the gift.

3. Assuming the cost of acquisition steps up to FMV at the time of the gift. The recipient inherits the donor’s original cost under Section 49(1). A recipient who sells shares at ₹500 that the donor originally bought at ₹10 will pay capital gains on ₹490 per share, not on the appreciation since the date of the gift. This is particularly significant for high-growth startup shares where the original purchase price may be a fraction of current FMV.

4. Ignoring the ESOP carve-out. Shares received by an employee from an employer, even if called a “bonus issue” or described informally as a gift, are treated as perquisites under Section 17(2)(vi), not as gifts under Section 56(2)(x). Founders and early employees who receive shares below FMV from the company need to run the perquisite analysis before assuming a gift exemption applies.

5. Gifting to a spouse or minor child to save tax, and expecting it to work. Section 64(1)(iv) clubs capital gains on shares gifted to a spouse back into the donor’s income. Section 64(1A) clubs a minor child’s investment income with the higher-earning parent. Neither route saves tax on the eventual capital gains. Gifting to parents or adult children (not minors) in a lower bracket is the route that actually works, and only where Section 64 does not apply.

6. Overlooking FEMA compliance for cross-border transfers. Calling a transfer a “gift” does not satisfy FEMA. A resident-to-NRI share gift requires LRS routing, authorised dealer bank approval, and potentially RBI filing. Failure to comply can attract FEMA penalties of up to three times the transaction value under the Foreign Exchange Management Act 1999.

Treelife practitioner note

In the share transfer engagements we have run at Treelife, the gap that creates the most downstream risk is not the Section 56(2)(x) exemption analysis, most founders know the relative threshold. The issue is the cost of acquisition that the recipient inherits.

We routinely see situations where a founder gifts a significant stake to a spouse or parent during an early-stage round, when the FMV is low and the gift is clean. Three years later, the company raises a Series B and the FMV is 50 to 100 times the original cost. At that point, the recipient holds shares with a very low cost base. If the company proceeds to a secondary sale or an IPO, the recipient’s capital gains liability is computed on the original purchase price, not on the FMV at the time of the gift.

Three things Treelife models before executing any family share gift. First, document the original purchase price paid by the donor with purchase confirmations and demat account statements, because assessing officers have challenged undocumented cost bases during scrutiny. Second, where the objective is estate and wealth planning rather than an immediate transfer, consider whether a holding structure or a family trust provides better long-term outcomes than an outright gift, particularly given the compounding FMV trajectory in growth companies. Third, and this is the one most people miss, check whether the intended recipient qualifies for Section 54F. If a parent or adult child who is the proposed recipient has no residential property and is likely to sell the gifted shares within a few years, a Section 54F reinvestment plan structured at the time of the gift can eliminate the LTCG entirely. We have seen families save ₹50 lakh to ₹1.5 crore in capital gains tax through this combination: clean relative gift under Section 56(2)(x), followed by a Section 54F reinvestment by the recipient. The conversation has to happen before the gift, not after the sale.

The relative definition check and the Rule 11UA valuation are the easy parts. The hard part is the 5-10 year consequence of the cost base the recipient is now locked into, and the planning opportunities that close if you do not structure correctly at the outset.

FAQs

Q: Does the donor pay any capital gains tax when gifting shares?
A: No. Section 47(iii) of the Income Tax Act 1961 excludes gifts from the definition of “transfer,” so no capital gains arise in the donor’s hands. The Gift Tax Act was abolished in 1988 and has no application. Tax consequences land in the recipient’s hands.

Q: What is the tax rate on shares received as a gift from a non-relative?
A: The fair market value of the shares (for listed shares) or the FMV computed under Rule 11UA (for unlisted shares) is taxable as income from other sources at the recipient’s applicable slab rate, provided FMV exceeds ₹50,000. The highest effective rate, including surcharge and cess, can reach 42.7% for individuals with income exceeding ₹5 crore.

Q: Is there a monetary limit on gifts between relatives?
A: No. Gifts between relatives as defined in Section 56(2)(x) are fully exempt regardless of value. A parent can gift shares worth ₹10 crore to a child and no tax arises in the child’s hands under Section 56(2)(x). Capital gains will, however, apply when the child eventually sells.

Q: What is the holding period for capital gains when I sell gifted shares?
A: Under Section 2(42A), the holding period of the previous owner (donor) is included in your holding period. If the donor held the shares for 10 months before gifting, and you hold them for 5 months before selling, the combined 15 months qualifies as long-term for listed equity.

Q: Can I use the FMV on the date of gift as my cost of acquisition when I sell?
A: No. Section 49(1) fixes your cost of acquisition as the original purchase price paid by the donor (not the FMV on the date of gift). This is unchanged by Budget 2024 or the Income Tax Act 2025.

Q: What is the capital gains tax rate if I sell gifted listed shares in FY 2026-27?
A: For shares held for more than 12 months (including the donor’s holding period), LTCG above ₹1.25 lakh is taxed at 12.5% under Section 112A. For shares held 12 months or less, STCG is taxed at 20% under Section 111A. Both rates were set by the Finance (No. 2) Act 2024 and confirmed unchanged by Budget 2025 and Budget 2026.

Q: Does gifting unlisted startup shares trigger FEMA compliance if the recipient is a resident?
A: A purely resident-to-resident gift of unlisted shares of an Indian company does not trigger FEMA. FEMA applies when one of the parties is a non-resident or foreign entity. Cross-border transfers must comply with the Foreign Exchange Management (Non-Debt Instruments) Rules 2019.

Q: What happens if the gift is challenged by the tax department as a disguised sale?
A: If the assessing officer finds indirect consideration (including future obligations or linked commercial arrangements), the transaction can be re-characterised. In that case, Section 50CA applies to the donor (deemed sale at FMV, capital gains arise) and Section 56(2)(x) applies to the recipient (FMV less any consideration is taxable). Robust documentation and absence of any counter-obligation are the primary defences.

Q: Can an employer gift shares to an employee as a bonus?
A: Shares allotted or transferred by an employer to an employee, free of cost or at a concessional rate, are taxable as perquisites under Section 17(2)(vi), not as gifts under Section 56(2)(x). The employer deducts TDS at slab rates on the difference between FMV on the exercise/allotment date and the amount paid by the employee.

Q: Is a gift deed mandatory for gifting shares?
A: No. Rule 11 of the Companies (Share Capital and Debentures) Rules 2014 permits transfer by way of gift using Form SH-4 alone. A separate gift deed is not legally required. However, a gift deed is strongly recommended for high-value transfers to establish intent, voluntariness, and the relationship between parties, particularly for scrutiny-proofing and future dispute avoidance.

Q: What tax applies to an NRI who receives gifted Indian shares from a resident relative and later sells them?
A: No Section 56(2)(x) tax applies if the NRI is a relative of the resident donor. On subsequent sale of listed shares, LTCG at 12.5% or STCG at 20% applies (same as residents). TDS is deducted by the broker on the sale proceeds. Repatriation from the NRO account is subject to the USD 1 million per financial year limit, with Form 15CA/15CB documentation.

Q: If I gift shares to my spouse, do the capital gains get taxed in their hands when they sell?
A: No. Section 64(1)(iv) of the Income Tax Act clubs the capital gains arising from assets gifted to a spouse (without adequate consideration) back into the donor’s income. The spouse pays no Section 56(2)(x) tax at the time of receipt (relative exemption), but the gain on eventual sale is taxed in the donor’s hands, not the spouse’s. Spousal gifting does not achieve any capital gains saving.

Q: Can gifting shares to a parent or adult child eliminate the capital gains on eventual sale?
A: Yes, in the right circumstances. Section 64 does not apply to transfers to parents or adult children (only to spouses and minor children). If the recipient is in a lower tax bracket, the LTCG from selling the gifted shares is taxed at their rate. Further, if the recipient has no residential property and reinvests the entire sale consideration in a house within the timelines under Section 54F of the Income Tax Act, the LTCG can be fully exempt. Both benefits, income splitting and Section 54F, can stack, making this a materially effective pre-exit planning strategy.

Q: Can LTCG from gifted shares be set off against capital losses?
A: LTCG under Section 112A (listed equity) can be set off against long-term capital losses from other assets. It cannot be set off against short-term capital losses or against ordinary income. Short-term capital losses can be set off against both STCG and LTCG from any asset. The Income Tax Act 2025 introduced a one-time provision for setting off long-term capital losses against short-term capital gains from Assessment Year 2026-27, which may apply in specific scenarios.

Q: What stamp duty is payable when gifting listed shares through a demat account?
A: The depository (NSDL/CDSL) collects stamp duty at 0.015% of the market value of the shares, borne by the recipient (donee). The stamp duty is collected electronically at the time of processing the demat transfer instruction. For a gift of shares worth ₹10 lakh, stamp duty is ₹150.

Regulatory references:

• Section 47(iii), Income Tax Act 1961: exclusion of gifts from the definition of “transfer”
• Section 49(1), Income Tax Act 1961: cost of acquisition for assets received as gift or under a will
• Section 64(1)(iv), Income Tax Act 1961: clubbing of income arising from assets transferred to spouse without adequate consideration
• Section 64(1A), Income Tax Act 1961: clubbing of minor child’s income with the higher-earning parent
• Section 2(42A), Income Tax Act 1961: definition of “short-term capital asset” including holding period rules for gifted assets
• Section 17(2)(vi), Income Tax Act 1961: perquisite value of ESOP shares allotted by employer
• Section 111A, Income Tax Act 1961: STCG on listed equity shares (20% effective 23 July 2024)
• Section 112A, Income Tax Act 1961: LTCG on listed equity shares (12.5% above ₹1.25 lakh effective 23 July 2024)
• Rule 11UA, Income Tax Rules 1962: fair market value of specified movable property for Section 56(2)(x)
• Rule 11 of the Companies (Share Capital and Debentures) Rules 2014: share transfer using Form SH-4