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GIFT OF SHARES
Got shares as Diwali gift??

Like it is truly said, dont judge a book by its cover. Similarly, a there is more to gift then just the wrapper in which it is wrapped. Actually
there may be tax hidden there !!
Transaction of gift of shares is much more complicated than it appears. It can fall under the garb of more than one law. In an age where the
tax authorities tax almost everything on the planet. Gift can not be gift without tax. It is very necessary to understand the taxability of gift
received by you in your hands.
You not only need to have knowledge of your income or losses but also about the gifts is received from any other person.
As per the Income Tax Act, 1961 gifts received are taxable in the hands of the person receiving it. These gifts may be in any form cash,
jewellery, movable and immovable property, shares etc.
The tax authorities have adopted a strict posture to avoid tax evasion in the form of gifts. Therefore, if the value of gifts exceeds Rs. 50,000
then the entire amount shall be taxable under the head Income from other sources. However, if the aggregate value of gift received from
a person or person is less than Rs. 50,000 then the entire amount shall be exempted from taxation.
If any individual receives any share as a gift , without consideration, the aggregate fair market value of which exceeds Rs. 50,000 than whole
of the aggregate fair market value of such movable property shall be taxable. If aggregate fair market value of share does not exceed Rs.
50,000 then nothing is taxable in hands of Donee.
For example, if the Fair Market value of share received as gift received during the year ending 31 March 2017 is Rs 35000, the it shall be
wholly exempted BUT in case where it is Rs.59000 then the entire amount of Rs.59000 is taxable under the head income from other sources.
There are few exemptions to taxability of gift. If you receive gift from your relative it is fully exempt under the Income Tax Act, 1961. All
the gifts received from the relative irrespective of its value are exempted from taxation.
For the purpose of claiming this exemption a relative means spouse, Brother or sister of individual or of spouse, brother or sister of either
parents, lineal ascendant/descendant of individual or of spouse and spouse of all the above mentioned relatives.
In case of Marriage of the individual the gift received will not be charged to tax. Apart from marriage there is no other occasion when
monetary gift received by an individual is not charged to tax. Hence, monetary gift received on occasions like birthday, anniversary, etc. will
be charged to tax.
Since shares are considered movable property, it is not mandatory to execute a gift deed. However, in order to create a legal record, it is
best to execute a gift deed on an appropriate stamp paper.

If you are receiving or giving share as gift from a person resident abroad you need to be cautious of not only of the taxes but also the
approvals that you may need Reserve Bank of India under Foreign Exchange Management Act, 2000.
If there is transfer of shares via gift from a non-resident to a resident there is no need of any approval. The RBI has given general permission
to a person resident outside India to transfer shares by way of a gift to an Indian resident. Also, a person resident outside India (other than
NRI) may gift the shares to any person resident outside India (including NRIs) without any approval from RBI/Govt in the sectors which
are under Automatic route. Approval of Government will be required for transfer of stake from one non-resident to another non-resident
in sectors which are under Government approval route.
NRIs may gift the shares held by them to another NRI.
However, Gift of shares by a resident to a non- resident requires a prior approval of RBI. If you are planning to gift your shares to Non
resident the below points should be useful to you as this is what Reserve Bank considers while processing such applications:
The proposed transferee (donee) is eligible to hold such capital instruments under Schedules 1, 4 and 5 of Notification No. FEMA
20/2000-RB dated May 3, 2000, as amended from time to time.
The gift does not exceed 5 per cent of the paid-up capital of the Indian company/each series of debentures/each mutual fund scheme.
The applicable sectoral cap limit in the Indian company is not breached.
The transferor (donor) and the proposed transferee (donee) are close relatives as defined in Section 2 (77) of Companies Act, 2013,
as amended from time to time.
The value of capital instruments to be transferred together with any capital instruments already transferred by the transferor, as gift,
to any person residing outside India does not exceed the rupee equivalent of USD 250,000 during the financial year.
Such other conditions as stipulated by Reserve Bank in public interest from time to time
And these documents needs to be enclosed while forwarding applications to Reserve Bank for approval :
1. Name and address of the transferor (donor) and the transferee (donee).
2. Relationship between the transferor and the transferee.
3. Reasons for making the gift.
4. In case of Government dated securities and treasury bills and bonds, a certificate issued by a Chartered Accountant on the market
value of such security.
5. In case of units of domestic mutual funds and units of Money Market Mutual Funds, a certificate from the issuer on the Net Asset
Value of such security.
6. In case of shares and convertible debentures, a certificate from a Chartered Accountant on the value of such securities according to
the guidelines issued by Securities & Exchange Board of India or as per any internationally accepted pricing methodology on arms
length basis for listed companies and unlisted companies, respectively.
7. Certificate from the concerned Indian company certifying that the proposed transfer of shares/convertible debentures by way of gift
from resident to the non-resident shall not breach the applicable sectoral cap/ FDI limit in the company and that the proposed
number of shares/convertible debentures to be held by the non-resident transferee shall not exceed 5 per cent of the paid-up capital
of the company.
8. An undertaking from the resident transferor that the value of security to be transferred together with any security already transferred
by the transferor, as gift, to any person residing outside India does not exceed the rupee equivalent of USD 250,000 during a financial
year.
9. A declaration from the donee accepting partly paid shares or warrants that donee is aware of the liability as regards calls in arrear and
consequences thereof.

So, next time you receive or give shares as gift make sure to check the amount, source, type as the share you receive as
gift may also act as an additional burden on your shoulders.
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About CA. Sudha G. Bhushan :

Sudha is qualified Chartered Accountant and a Company Secretary with more than a decade of experience in the Foreign
Exchange Management Act, RBI, Transfer pricing and International taxation matters. She is a noted speaker and author.
Her articles are regularly published in the Journals of several institutes and at various other forums and has authored the
Comprehensive books:
Practical aspects of FDI in India published by Institute of Company secretaries of India
Due Diligence under Foreign Exchange Management Act, 1999 published by CCH.
Guide to Foreign Exchange Management in two volumes published by CCH. Practical
Guide to Foreign Exchange Management published by CCH, a Walter following
Kluwers company. Handbook on FEMA, Publication of Institute of Chartered
Accountants of India
A scholar throughout her life she has been awarded many awards and recognitions including Women Empowerment through CA Profession by
Northern India Regional Council (NIRC) of Institute of Chartered Accountants of India (ICAI). Backed by experience in International firms she
has extensive experience of handling international transactions. She advises corporate as well as government authorities in lot of intricate
transactions. Rendering tax and regulatory advisory services, she has overseen and played a crucial role in the execution of complex international
transactions involving issues revolving around tax, repatriation, minimization of tax exposure, Foreign Investment (Inbound and outbound) etc.
She is on the Board of many esteemed listed companies as Independent director. She is member of Committee of International Taxation of WIRC,
ICAI, Member of Editorial Committee of WIRC of ICAI and Committee of women empowerment of ICAI.
She can be contacted at sudha@taxpertpro.com || 09769033172