A gift could be in the form of cash, tangible goods, or financial instruments. It’s crucial that you maintain all necessary documents on gift items and understand the tax implications to avoid any penalty. Disclosure of gifts is also important while filing Income Tax Return.
Any gift of shares to a certain relative is exempt from taxation in the recipient’s hands, as per the Income Tax Act, 1961. A spouse falls within the definition of a ‘relative’ as defined under Section 56(2) (vii) of the Act.
The Income Tax Act states that the transfer of a capital asset may result in capital gains tax. However, Section 47 specifically excludes gifts from the definition of transfer. Therefore, the sender of a gift is not required to pay income tax on such a transaction.
On the other hand, it is important to note that the receiver may be subject to taxation under Section 56(2) of the Income Tax Act for gifts of moveable property, including shares, ETFs and mutual funds, among others, that are given without consideration and have a Fair Market Value of more than Rs 50,000. Income from gifts of this kind should be declared on the Income Tax Return under the section Income from Other Sources.
However, gifts may qualify as tax-free even for the recipients in the following situations:
1) A gift from a relative, such as siblings, a spouse, or a lineal ascendant or descendant, received by an individual.
2) A present is given to an individual on the day of their marriage.
3) An individual gets a gift through inheritance.
ITR Filing: Tax on Gifted Shares
The gift’s sender is not required to include the gift in their Income Tax Return. On the other hand, if the gift is exempt from taxation, they should declare it under Schedule Exempt Income or otherwise they should report it on Schedule OS (IFOS). If the gift is subject to taxation, calculate the tax due using the applicable slab rates.
Report any profits from the sale of such shares and securities as capital gains on Schedule CG in the ITR. The taxpayer must submit Form ITR-2 and pay tax as per the applicable tax slab.
