Gifting shares is a thoughtful gesture with financial implications. One important consideration is stamp duty on gift of shares which is often ignored. In this article, we will simplify the complexities surrounding stamp duty, offering clarity for both giver (donor) and recipient (donee).
Table of Contents
What is Stamp Duty?
Stamp duty is a tax levied by governments on different transactions, and how the stamp duty applies can differ based on the location of transaction. In case of gifting shares, stamp duty on gift of share come into play, and it is important for both the giver (donor) and receiver (donee) to understand its impact on main transactions.
What is Universal Stamp Duty?
The universal stamp duty on the gift of shares has been key update in a recent amendment. The finance act 2019 brought changes to the Indian Stamp Act 1899, which aims to streamline stamp duty on securities transactions. The Ministry of Finance further established the Indian Stamp (Collection of Stamp Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules in 2019 to create a centralized mechanism for stamp duty collection nationwide. These amendments officially came into effect on July 1, 2020.
Since then a universal rate of stamp duty on the transfer of shares has been established. As of July 1, 2020, the rate of stamp duty on gift of shares is consistent throughout the country. It is 0.015% of the market value of the shares. This clarifies that the stamp duty rate for the transfer or gift of shares is uniform across the nation.
Stamp Duty on Gift of Shares
1. Stamp Duty on gift of shares
The stamp duty is determined based on the market value of the securities/shares being issued or transferred according to the Indian Stamp Act.
2. Market Value in case of shares
- For securities traded on a stock exchange, the market value is the trading price.
- If a security is transferred through a depository but not traded on the stock exchange, the market value is the price or consideration mentioned in the relevant document.
- For securities dealt with outside of the stock exchange or depository, the market value is the price or consideration mentioned in the document.
- In the case of physically traded securities, the market value is the consideration mentioned in the transfer deed.
3. Procedure for Gift of Shares
- Prepare Gift Deed: Firstly draft a gift deed for transferring the shares (equity or preference).
- Hand over Gift Deed and Share Certificate: The person giving the shares is donor and the receiving the gift is donee. The Donor should give the gift deed and the share certificate to Donee.
- Acceptance by Donee: The Donee or someone on his/her behalf is required to accept the gift deed and share certificate.
- Fill SH-4 Form: Both donor and donee is required to fill out and execute SH-4 form.
- Submit Transfer Documents: The dated and executed transfer documents is required to be submitted to the company, either by the donor or the donee within 60 days of execution of above form.
- Board Meeting: The Company is required to schedule a board meeting within 1 month of receiving the above transfer documents.
- Board Resolution: A Board Resolution approving such transfer of shares will be passed during the meeting.
- Endorse Transferee’s Name: The Company will endorse the name of the donee on the back of the Share Certificates.
- Deliver Share Certificate: The Company is required to deliver the share certificate to the Donee within 1 month of receiving the transfer documents.
4. No stamp duty
Stamp duty shall be calculated on the market value of shares according to the above provisions. However, there is no monetary amount involved in Gift of shares.
In simple terms, if there is no specific provision for the market value of shares transferred without consideration like a gift, it is likely that stamp duty will not be applicable.
The Government of India has provided clarity on this through frequently asked questions (FAQs). According to these FAQs (Question 14 & 24), No stamp duty is required to be paid for transactions without any monetary consideration, such as gifts, bonus shares, or securities transmission.
Hence stamp duty is usually calculated based on the market value of shares. However since gifts involve no monetary exchange, stamp duty is not charged in such cases.
Read also: What is PM Kisan Yojana – A Step by Step Guide 2024
Conclusion
Gifting shares can be a smart financial move, but it is important to keep in mind the stamp duty on gift of shares while gifting the shares. To ensure that your gift of shares is both financially proper and considerate, it is necessary to consult and assess the stamp duty implications.
Frequently Asked Questions (FAQ)
Gifting shares in India is not subject to taxation for you or your child. However, if your child later sells the gifted shares, he will have to pay taxes on the income generated under “Income from Capital Gains.”
In India, it is possible to transfer shares of a private limited company as a gift. This includes shares, bonds, debentures, and mutual fund units held in digital form. The gift can be processed through the depository participant (DP) of the donor (the person giving the gift).