Some brokers now allow investors to gift securities to family and friends online, directly from their demat account. You can use this to easily gift shares, bonds, exchange traded funds and even mutual funds held in your demat account.
The facility, which relies on CDSL’s Easiest (Electronic Access To Securities Information and Execution of Secured Transaction) system, is easier than the physical method, which involves filling and submitting a delivery instruction slip (DIS).
At present, discount brokers Zerodha and Fyers offer this service. You can also register directly on CDSL’s Easiest platform to gift securities.
How does it work?
Visit your broker’s website, go to the holdings you want to gift, click on send as a gift, enter receiver’s name and mobile number, select the securities and the quantity, and hit confirm. The recipient can accept the gift through an e-mail. Once this is done, you need to confirm it with your CDSL transaction PIN (TPIN). The broker will then set up an off-market transaction. Enter the OTP and the transfer is complete.
Also read: Have a home loan? Here’s how to squeeze the most out of it.
Note that the recipient must be on the list of beneficiaries in your broking account and should also have an account with the same broker. If not, you can add them by simply adding their PAN and demat account number.
You can also do this directly by registering for CDSL Easiest or NSDL Speed-e. If you are doing it directly, the recipient’s account need not be with the same broker.
What’s the offline method?
The sender must fill in a delivery instruction slip and submit it to the broker. The DIS will have details such as names and depository participant (DP) IDs of the recipient and sender, the client ID, number of shares to be transferred, and so on. The transfer date must be mentioned, too.
Once you submit the DIS, the transfer will be executed on the date mentioned. However, the shares will still be with the broker of the receiver. Now, the recipient must fill in a receipt instruction and submit it to his DP. Once that’s done, the shares will be credited to his demat account.
What are the tax implications?
If you are transferring securities to relatives, there are no tax implications for the recipient. Under the Income-tax Act, the term ‘relative’ includes spouse, sibling, sibling of spouse, sibling of either parent, lineal ascendant or descendant of the individual or spouse, and the spouse of lineal ascendant or descendant.
Also read: The art of investing in equity markets—when and how to sell?
However, gifting to non-relatives triggers a tax event. If the gift value exceeds ₹50,000, it will be considered as income from other sources and taxed at income tax slab rate of the recipient.
What’s the tax on future sale?
If you received gift from a relative, your date of acquisition and purchase price will be the same as that of the original investor.
However, if you received a gift from a non-relative, the purchase price will be the fair market value on that date. The lowest price on the date the gift is received will be considered as the fair market value.
“As per rule 11UA, the lowest price to be considered will be on the date immediately preceding the date of gift, if that day is a holiday,” said Prakash Hegde, a charted accountant in Bengaluru.
Also read: Mutual funds engineer new category in quest for tax-efficient debt funds
