If I am transferring shares from my demat to another, do I need to be bothered about taxation?

I am required to close my trading and demat account due to my new employer who has restrictions on this. I am planning to transfer a few stocks from my demat to a a friend and my wife. Anything that I need to be concerned about?

There are two aspects to this that you need to be sure off

1 Off market transfer, no STT, hence no capital gain exemption

When you transfer shares, the person acquiring the shares isn’t paying a STT. So if your friend decides to sell after holding for 1 year, can’t show it as a long term capital gain and get exemption. Also since the stock was acquired without paying STT, short term will be as per income tax slab rates and long term will be taxed at income tax slabs (with indexation benefit). You can check this module to learn more on taxation.
There is no issue if you are transferring this to your wife or father/mother/brother/sister. It is not considered as a transfer, it becomes a gift. Also the holding period from whatever you bought can continue for your wife.

2 Consideration for the transfer

What is transferred to your wife can be shown as a gift, so it doesn’t add to her revenue. What is transferred to the friend has to be for a certain consideration (take money back from him). Since this doesn’t involve STT, same rule as above applies to you, you will have to STCG/LTCG as per IT slabs based on your purchase price and consideration price. Also, the income tax department is tracking all off market transfers very closely as this was used as a vehicle by black money operators. So extremely important that all these transactions are documented correctly and executed around the market price of the stock. Check out the notice one of our clients received.

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