If a father transfers shares of a company to his daughter or son, are they liable to pay taxes? Several factors will determine the tax liability, including the genuineness of the transaction, the presence of a gift deed, the holding period of the shares, and more.
Under Section 56 of the Income Tax Act, any monetary gift, immovable property, or movable property received by an individual is subject to taxation if the total amount received during the year exceeds Rs 50,000. Nonetheless, certain exceptions to this regulation exist, notably gifts received from relatives.
Section 47 exempts capital gains on gifting of shares, even though it falls under the definition of “transfer”. However, if the recipient of the shares falls under the definition of relative as per Section 56, then there is no tax due in the hands of the receiver. Further, for computing taxes on subsequent share sales by the receiver, the cost will be borne by the previous owner and the holding period will also start from the date when the previous owner acquired the shares. The above is applicable even if the shares are transferred as part of inheritance.
Also read: ITR Filing for FY23-24: 10 must-do things while filing ITR to avoid income tax notice
Chintak Shah, Vice President, Anand Rathi Wealth Limited, explains the taxation rules in case of gifting of shares.
“If shares received as a gift are immediately sold after receiving, the resulting income is taxable under the head ‘Income from Capital Gains.’ The recipient should pay tax at applicable rates and file ITR-2,” he explains.
The holding period for determining the nature of capital gains, whether short-term or long-term, is calculated from the date of acquisition by the previous owner until the
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