How to gift a financial product to your near and dear ones

29 Oct,  2022
By: Eastern Fin Research Team
#Mutual Funds

The festive season is round the corner, where we all have been in situations wherein we spend hours searching for the right gift to give on occasions. After hours of research, we tend to end up spending on wasteful items such as Smart watch, Tab, clothes, etc. In order to avoid this, what if we tell you that you can also gift stocks, mutual funds, gold bonds all via your demat / trading account?

One just needs to call up an EF Representative, without spending a thought on going to sweet shops or malls.

Let us understand more on this.

Process flow -

  • Login to your online trading portal/call up an EF representative
  • You can either gift the stocks/MF/SGB that you own i.e., existing investment in the demat account or you may purchase the security you desire to gift. The units need to be bought in Demat form.
  • Select the stocks, ETFs, Gold bonds you wish to gift that are approved for gifting.
  • The recipient should also have a Demat account. If they have Eastern Financiers account, they can accept it instantly, otherwise, they can open a new account first and then accept.
  • Once the recipient accepts the gift, confirm the transfer of stocks from your demat account thru NSDL
  • Once this is done, Eastern Financiers will set up an off-market gift transaction at NSDL that you need to verify using an OTP sent to you by NSDL.
  • Once this is done, at 5 PM on the same day, if it is a trading day or the next trading day, you will receive an e-mail and SMS from NSDL asking you to confirm the off-market gift transaction on the NSDL website. Enter your PAN or your 16-digit demat account ID and complete the SMS OTP verification by 8 PM on the same day.
  • The stocks disappear from your holdings and appear in the recipient's holdings on the next day.

Advantages -

  • Shares offer liquidity. The shareholder can sell the shares and convert them into money whenever needed.
  • It also offers a regular income as shareholders receive dividends from blue-chip companies.
  • When you gift shares, you do not have to pay tax on the transaction. (Subject you fall in the exempted category)

To know more on financial gifts, check out this video on our Youtube channel -

Requirements -

  • Before we get going, for the online method, more of transfer both the receiver and transferor should have account with the same broker to effect transfer process.
  • Minors can only have a demat account not a trading account

Tax Implication -

For the Doner (Sender) -

As per Section 2(14) of the Income Tax Act, shares and securities are Capital Assets. The transfer of a Capital Asset is taxable as Capital Gains. However, the definition of ‘transfer’ as per Section 47 specifically excludes gifts. Thus, the gift of shares and securities is not taxable in the hands of the sender of the gift.

For the Donee (Receiver) -

  • As per Sec 56 of the IT act, when there is a transfer of Shares and Securities If the aggregate value of shares & securities is up to INR 50,000 per year, then such a gift is exempted. The Fair Market Value of shares is more than Rs 50,000 then it shall be taxed under head Income from other sources as per the slab rates for a non-relative.
  • Shares and Securities received as a gift from Relative {Section 56 (2) (vii)} shall be wholly exempted.
  • Shares & Securities received on the occasion of marriage or inheritance or in contemplation of death of payer is exempt income since such gifts are exempt as per Sec 56(2)(vii)

Relatives are -

  • Spouse of the individual
  • Brother and sister (including their respective spouses) of both individual and his/her spouse
  • Brother and Sister (including their respective spouse) of an individual’s father and mother
  • Any lineal ascendant or descendant (including their respective spouses) of the individual
  • Any lineal ascendant or descendant (including their respective spouses) of the spouse of the individual

The taxability of the gift is determined on the basis of the aggregate value of gift received during the year and not on the basis of individual gift. Hence, if the aggregate value of gifts received during the year exceeds Rs. 50,000, then total value of all such gifts received during the year will be charged to tax (i.e., the total amount of gift and not the amount in excess of Rs. 50,000).

It is best to consult a tax adviser with respect to the tax implication of the gift for the Donee.

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