If profit by selling shares is > 1lac & < 2lacs, can we GIFT 50% shares to our family member(say brother) and claim LTCG benefit (of <1lac) from both accounts?
Ex: 1000 shares of Rs.100 bought on 1/4/19.
Now the share appreciated to Rs.250.
Profit will be 150000( 1000 x 250 = 250000 - 100000)
Can I GIFT 500 shares to my family member’s DMAT, sell shares. Now as profit will be 75000 each in two persons accounts and avoid tax.
My main doubt is Some blogs say Shares transferred off-market(without paying STT) attract 20% tax on Profit of sale. But didn’t explained them clearly.
Gifting of shares without adequate consideration and if such gift exceeds fair market value(FMV) of more than 50K, it will be taxable in the hands of the recipient as per the Income Tax provisions.
The value exceeding 50K shall be treated as Income from other sources.
However, taxes on gift is exempt if you are gifting to a relative. In your case, it is exempt as you are gifting to your brother.
Further, the cost and period of holding in the hands of recipient shall be reckoned from actual date of purchase and not the date of gifting/transfer.
Yes, you can save tax on the gains in excess of Rs 1Lacs by this.
Also, yes shares transferred off-market(without paying STT) attracts 20% if it is long term otherwise it will be as per the applicable slab rates.
So while GIFTING OF SHARES as we/receiver don’t pay any STT and it’s off-market transaction (through DIS)., will the RECEIVER had to pay 20% tax on SELL PROFITS or can claim for LTCG < 1lac?
LTCG is taxed at 10% in excess of INR 1 lac under Section 112A if STT is paid on buy and sell of such shares. If you gift equity shares to a relative, it is not considered as the transfer of a capital asset, and thus income tax is not applicable.
When the receiver of the gift will sell the shares, capital gains would arise.
To determine whether Capital Gain is LTCG or STCG, the holding period is calculated from the date of purchase of the previous owner to the date of sale. The cost of acquisition is the purchase price of the shares for the previous owner.
Therefore, you can claim the benefit of exemption of up to INR 1 lakh u/s 112A for both you and your relative.
@Quicko My father had transferred his shares to me back in 2018. Some stamp amount was paid for that transfer process. Rs 520. I had dematerialised the shares so they are in my Demat account now. If I ever sell the shares, how will the LTCG taxation be applied to me?
@Quicko did you mean 10% or 20% above? In such a case, tax is to be paid at 10% (without the benefit of indexation) on entire capital gain.
In the previous post you mentioned, when there was no STT, 20% tax will be applicable. I’m a bit confused.
Also, for an off market transfer, is it possible to pay STT retrospectively or to reverse the gifting as this is working against the tax benefits in my scenario?
Transfer of shares from your father to you is considered a gift and is exempt in your hands.
On the sale of shares, Capital Gains would arise
If shares were held for more than 12 months from date of purchase of previous owner to date of sale, LTCG or else STCG
Purchase Date = Date of purchase of shares by the previous owner
Purchase Value = Purchase value of the previous owner
Tax Liability = 10% u/s 112A
But when I dematerialized the shares after transfer was done in paper format, HDFC Securities (prior to Zerodha I has account there) has set the purchase price as the IPO price at which it was bought by my father in 1998. The same is shown in Console too. Now?
The donor of the gift is not required to pay income tax and so the tax treatment in the hands of the recipient of the gift is based on the cost of acquisition and holding period of the previous owner. We have updated the same in the previous answer.
