Do you plan to share this Diwali as a gift? Here is the process and applicable taxes
Diwali is considered an auspicious day when the power of light overcomes darkness, and people celebrate this victory by exchanging gifts and other seasonal greetings with loved ones.
But did you know that you can also offer shares to your relatives and friends, both in a digital process or offline. All you would need is a demat account (for the recipient and yourself), some additional information, and know-how on some technical aspects.
Here is an overview of the stock donation process.
Things to know
In India, there are two depositories: Central Depository Services (India) Limited (CDSL) and National Securities Depository Limited (NSDL).
To get started, first check your deposit provider. Depending on your custodian, you will first need to register with their platform for online access.
Check your inbox or ask your Depositary Participant (DP) for the Delivery Instruction Slip (DIS), which may be your stockbroker or other person listed at the time of opening your brokerage account. securities.
Write down your beneficiary identifier (BO ID) and the identifier of your friend / relative or to whom you will offer these shares. You will find this identifier in your stockbroker’s welcome note, the custodian’s welcome note, or you may also have received this information by mail.
The CDSL BO ID is a 16-digit number; NSDL consists of 14 digits.
How to offer shares?
Online process using stockbroker interface
Step 1: You will need to complete the DIS form and submit it to your stockbroker who must support the stock donation infrastructure. You don’t need to fill the physical DIS form because some stockbrokers like Zerodha, Angel One and others also support e-DIS function.
2nd step: After completing your DIS or e-DIS form and including your friends’ BO ID details and other required details, an intimation from the stockbroker side will be provided.
Step 3: After receiving such a notification, the person who receives these gifted actions must fulfill certain conditions.
According to Hemant Sood, founder of Findoc, a Delhi-based brokerage firm, the donee should check whether or not he has a TPIN (a digital transaction PIN) from CDSL.
If they don’t have it, they must use their BO ID to generate a TPIN on the CDSL website, then log into their trading account and authorize the receive gift transaction using both the TPIN and the one-time password (OTP).
For Zerodha, there is a specified time frame of 7 days for the entire transaction to be completed. Be sure to check with your respective DP what their time frame is for completing the gift transaction.
There is also another online sharing transfer process in CDSL, but for this you will need to add the recipient’s BO ID as a trusted BO ID in your demat account. But you can only use this method if the person you’re giving a gift to is your immediate family member, as specified, and not just a friend.
Offline process using DIS
Palka Arora Chopra, senior vice president of Mastertrust, an BSE-listed financial services company, says this method is an offline dematerialization transfer method and involves the donor filling out and submitting a DIS form with the details of the shares to be gifted (ISIN number, demat donee account details, and others).
This DIS will then have to be submitted to their DP, then the DP will transfer the shares. The DP might also charge a fee.
After that, the recipient of such tendered shares must submit an instruction to his DP, after which the facilitation of such share transfer transaction can be executed.
The information shared in the DIS by the donor will be matched with the information shared with done, and then the share transfer transaction will be executed, Chopra explains.
How will taxes apply here?
Gift tax applicable to non-relative friends: Aarti Raote, Partner, Deloitte India, says cash or in-kind gifts above Rs 50,000 are subject to tax in the hands of the recipient unless received from specified relatives.
If the shares are given for the wedding of friends, no gift tax is applicable: If someone gives shares as a gift to his friends, it would be subject to tax unless the value of the gift is less than Rs 50,000 or “if the gift is on the occasion of a friend’s wedding “, adds Raote.
Creating a deed of gift is advised to avoid the scrutiny of the IT department: CA Tarun Kr Batra, Senior Partner, RSPH & Associates, a Delhi-based CA firm, advises people who offer shares to each other to “create a deed of gift” to keep proper records in case they receive claim income tax in the future. “The deed of gift must be executed in the donor’s home state,” Batra added.
Thus, in essence, upon receipt of a gift, the donee will be subject to tax on income from other sources, unless it is received from a relative or during marriage or the amount of such donation does not exceed Rs 50,000. However, if the donee sells such donated shares, capital gains will be applicable under income tax laws.
How to calculate the tax if the donated shares are sold?
Mihir Tanna, Chartered Accountant and Managing Partner of SK Patodia and Associates, a Mumbai-based CA firm, explains that as the original owner (the person giving a gift) did not pay any tax even after the appreciation in the value of the asset (which is given as a gift), the tax will be recovered from the recipient of the gift in the future when said asset is transferred.
“As a result, when a recipient of a gift transfers assets in the future, the cost at which the original owner (relative who gave the gift) acquired the asset will become the cost to the recipient and the period ownership of the original owner will also be taken into account,” Tanna added.