A father decides to move 1,200 shares he has held since 2009 into his daughter's demat account. He fills in an instruction at his broker, the shares appear in her account four days later, and no money moves in either direction. Nothing has been sold, so there is nothing to declare, and the family reasonably treats the matter as closed. Ten months later she sells the lot for ₹5,16,000 and her broker's capital gains statement reports a short-term gain of ₹5,16,000 on shares it believes were acquired the day they arrived, at no cost. The correct figure is a long-term gain of ₹2,88,000. Everything needed to produce it existed in 2009, and none of it was handed over with the shares.
Your father transfers his scooter to your name. There is no sale and no money, and the registration certificate now reads as yours. But the scooter does not become new. It is still a 2011 machine: its age, its service history and its accumulated no-claim record all belong to the vehicle rather than to whoever holds the papers. And if the original invoice was lost years ago, nobody can establish what was paid for it — not because the fact changed, but because the evidence of it did.
A gifted share behaves exactly like that scooter. The purchase price and the date of purchase attach to the share and travel with it, so the recipient inherits both. What does not travel is the proof. The depository moves a security; it has never held a cost or a date, and it does not acquire one on the way across. So a gift that is administratively trivial can leave the recipient holding something whose tax history is entirely true and entirely unprovable.
What the gift does, and does not do
- 1Does the giver have a capital gain?
No. A transfer of a capital asset under a gift is excluded from the charge on capital gains, so the giver realises nothing — no gain, and just as importantly no loss. This is why gifting a holding that has fallen is not a way to book the fall, a point the lesson on a holding that cannot be sold works through in detail.
- 2What cost does the recipient take?
The cost of the previous owner. Not the value on the day of the gift, which is the assumption almost everybody makes. If the father paid ₹64 a share in 2009, the daughter's cost is ₹64 a share, whatever the shares were worth the day they moved.
- 3When does her holding period start?
It includes the period for which the previous owner held. The shares do not become a fresh 2024 purchase; the clock runs from 2009, so a sale ten months after the gift is comfortably long-term rather than the short-term holding the platform sees. Note that the date is doing two jobs at once: it settles which side of the twelve-month line she is on, and it settles whether the deemed-cost rule from the first lesson in this module is available to her at all.
- 4Is the receipt itself income for her?
That depends entirely on who gave it. This is a separate charge under a separate provision, it has nothing to do with capital gains, and it is the one that occasionally produces a tax bill on a gift nobody thought was taxable at all.
The list the exemption runs on, and the direction it runs in
Property received without consideration is income of the recipient where the aggregate fair value of such receipts in the year exceeds ₹50,000 — with exceptions, the widest of which is a receipt from a relative as the provision itself defines that word. The definition is a closed list rather than an ordinary understanding of family, and two features of it catch people.
- The threshold is an aggregate, and it is a cliff rather than a step. It applies to the total of such receipts across the year, and once the total crosses it, the whole aggregate is income and not merely the excess. Shares worth ₹49,000 from a friend are nothing; shares worth ₹51,000 from the same friend are ₹51,000 of income.
- The list is drawn from the recipient's side, so it is not symmetrical. A brother or sister of either of your parents is on your list, so shares gifted by an uncle to a nephew fall in the exemption. A nephew is not on the uncle's list — he is not a lineal descendant, nor a sibling, nor a sibling of a parent — so the identical shares gifted by the nephew to the uncle are taxable in the uncle's hands above the threshold. Same two people, same shares, opposite answers depending on which way they move.
- Cousins are not relatives for this purpose, which surprises Indian families more than anything else in the provision, because a cousin is often a closer relation in practice than several people who are on the list.
- Two other exemptions are worth knowing because they are wide. Property received on the occasion of the recipient's own marriage is exempt regardless of who gave it, and property received under a will or by inheritance is exempt regardless of the relationship. An inheritance is therefore outside this charge entirely, and it still passes on the deceased's cost and holding period in the ordinary way.
Whose income is it afterwards?
Once the shares belong to somebody else, the dividends and the eventual gains are theirs, and are taxed at their rate. That is the general position and it is what makes a gift to an adult child or to a parent a genuine shift of the tax. Two exceptions run the other way, and both are old anti-avoidance rules rather than anything to do with securities.
| Who receives the shares | Whose income the dividends and gains are | The mechanism |
|---|---|---|
| Your spouse | Yours, not theirs | Clubbing of income. Income arising from an asset transferred to a spouse otherwise than for adequate consideration is added back to the transferor's income. The asset is genuinely hers; the income is taxed as though it were still his |
| Your minor child | Yours, generally | The same idea in a separate provision, and the reason investing in a minor's name gives no tax advantage while they are a minor — worked through in the lesson on investing for your children |
| An adult child, a parent, a sibling | Theirs | No clubbing provision reaches these transfers. The income belongs to the recipient and is taxed in their slab, which may be lower or higher than yours |
| Anybody, on income earned by reinvesting the clubbed income | Theirs | Clubbing catches the income arising from the transferred asset. It does not follow the money down a second generation, so income earned on the reinvested income belongs to the recipient |
How the shares actually move, and what to send with them
- It is an [[off-market transfer]], not a trade. The instruction goes to the depository through the giver's broker, with the reason recorded as a gift — the reason code matters, because a gift, a transfer between your own accounts and a private sale are three different things on the same form. There is no exchange, no counterparty and no STT. The depository charges a fee per holding, payable by the giver.
- Both accounts have to be able to receive it. The recipient needs a demat account of their own with completed formalities. For a minor, that is a minor's account operated by a guardian, and it comes with its own restrictions.
- Mutual fund units held in a folio generally cannot be given away at all. Units held in a statement-of-account folio with the fund house are, as a rule, transferable only on death; units held in demat form can be moved off-market like shares. So whether the same fund is giftable turns on how you happen to hold it, which is a good reason to know which of the two you have.
- Send the evidence, in writing, on the same day. A gift deed or a simple signed declaration recording the donor, the recipient, the shares and the fact that no consideration passed; and with it the contract notes or the demat statement showing the original purchase date and price. This is not a formality. It is the only thing that will let the recipient establish a cost of ₹64 rather than nil, possibly fifteen years later, in a conversation with somebody who was not at the family lunch.
Gifting to a spouse to move the dividend income
You are in the highest slab and your wife has almost no taxable income. You hold shares paying about ₹1,80,000 of dividends a year, taxed in your hands at your slab rate. A colleague suggests gifting the shares to her so the dividends are taxed at her much lower rate.
Your mother gifts you shares she bought in 2015 for ₹80,000. They are worth ₹3,00,000 on the day of the gift. You sell them eighteen months later for ₹4,00,000. What is the position?
Papa ne 2009 ke 1,200 share beti ke demat mein daal diye. Na paisa chala, na kuch bika — gift pe capital gain kisi ka nahi banta, na profit na loss. Das mahine baad beti ne ₹430 pe beche = ₹5,16,000, aur broker ka statement dikhata hai ₹5,16,000 ka short-term gain, cost zero. Sahi jawab: ₹2,88,000 ka long-term gain. Kyunki gift mein share ke saath do cheezein chalti hain — dene wale ka cost, aur dene wale ki ghadi. Papa ne ₹64 diya tha, toh cost ₹64 (gift wale din ki ₹3,60,000 value ka koi kaam nahi), aur ginti 2009 se chalti hai, isliye das mahine mein bechne pe bhi long-term. Aur kyunki tareekh 2009 ki hai, 31 January 2018 ka bhaav bhi kaam karta hai — yahan ₹190 — toh cost 1,200 × ₹190 = ₹2,28,000, aur gain ₹5,16,000 − ₹2,28,000 = ₹2,88,000. Jo cheez fail hui woh kanoon nahi, kaagaz tha: depository share bhejta hai, cost aur tareekh kabhi nahi bhejta. Isliye gift wale din hi ek signed declaration aur 2009 ka contract note saath do, aur woh lene wale ke paas rahe. Do baatein aur. Ek: milne pe alag charge hai — saal bhar mein ₹50,000 se upar mila property income maana jaata hai, aur limit paar hui toh poora amount, sirf extra nahi; chhoot us list ke rishtedaaron se milne pe hai jo kanoon ne khud ginaaye hain, aur woh list lene wale ki taraf se banti hai — chacha se bhatije ko mile toh chhoot, bhatije se chacha ko mile toh tax. Cousin us list mein hai hi nahi. Do: patni ko gift karke tax nahi bachta — us asset ki income clubbing se aapki hi maani jaati hai, aur "₹100 mein bech dete hain" se bhi kuch nahi badalta: nominal daam adequate consideration nahi hai, toh clubbing waise hi chalti hai, aur upar se jo gift mein transfer hi nahi tha woh ab asli transfer ban jaata hai — matlab aapke sir pe ek capital gains ka hisaab, aur badle mein kuch nahi. Bade bete ya maa-baap ko doge toh income unki hogi — par tab share sach mein unke ho jaate hain, aur wapas lene ka koi rasta nahi hota.
- A gift is not a transfer for capital gains, so the giver has no gain and no loss on it.
- The recipient inherits the giver's cost and the giver's holding period — not the value on the date of the gift.
- The receipt itself is income above an aggregate threshold unless the giver is on a closed list of relatives, and that list is drawn from the recipient's side, so it is not symmetrical.
- Income from shares gifted to a spouse or minor child is clubbed back to the giver; a gift to an adult child or a parent is not.
- The depository moves the security but never the cost or the date — so a signed declaration and the original contract notes are the whole of the paperwork that matters.
Mark it done to track your progress through the curriculum.