Gifted Shares Tax in India: Recipient Tax, Cost of Acquisition and Holding Period

Current rule and what decides the result

A gift of shares requires two separate tax tests. First, at receipt, section 56-type anti-abuse rules can tax specified property received without or for inadequate consideration when the statutory ₹50,000 threshold is crossed, unless an exception such as receipt from a defined relative applies. Second, when the donee later sells an exemptly received gift, carry-over cost rules generally use the previous owner's cost and include the previous owner's holding period. The market value on the gift date is therefore not automatically the donee's later capital-gains cost.

Key rules to apply

• If the receipt is exempt and section 49 applies, the previous owner’s cost—and relevant holding history—usually follows the shares into the donee’s later capital-gains computation.
• A gift from a person falling within the statutory definition of relative is generally outside the section 56(2)(x) receipt tax, subject to the facts.
• ₹50,000 threshold: For specified property received without consideration from a non-relative, crossing the aggregate ₹50,000 FMV threshold can make the statutory amount taxable; do not assume only the excess is taxed.
• Where property is acquired below prescribed FMV and the difference crosses the statutory threshold, the difference can be taxable under section 56(2)(x), subject to exceptions.
• Section 49 generally carries the previous owner’s cost to the donee for qualifying gift transfers.
• The previous owner’s holding period is relevant when classifying the donee’s later sale as short- or long-term.

Gift from parent

Gift from non-relative

How to apply it step by step

1. Identify donor relationship and whether a statutory gift exception applies.
2. For a non-exempt receipt, determine prescribed FMV under the applicable valuation rules.
3. Aggregate relevant property receipts for the ₹50,000 threshold test.
4. Keep gift deed, demat transfer instruction and donor/recipient PAN details.
5. Obtain the donor’s original purchase cost/date and corporate-action history.
6. On later sale, apply carry-over or receipt-tax cost rules as the law requires.
7. Include previous-owner holding period where applicable.
8. For listed shares, separately test STT/section 111A/112A and grandfathering conditions.

Common mistakes and edge cases

• Assuming all gifts are tax-free.
• Taxing only the amount over ₹50,000 where the statute taxes the prescribed amount once the threshold is crossed.
• Using gift-date market value as cost for a relative gift without authority.
• Losing the donor’s original cost records.
• Treating a demat off-market gift as a normal sale.

FAQs

Related Finin2min guides

• Bonus Shares Sold: Zero Cost, Holding Period and Which ITR?
• Gifted Shares: Cost of Acquisition & Capital Gains
• Inherited Gold Sold: Whose Cost and Holding Period Should You Use?
• Stock Splits and Consolidations: Cost Allocation, Holding Period and Capital-Gains Traps
• Property Cost of Acquisition
• Capital Gains Holding Period: 12-Month vs 24-Month Rules
• Arbitrage Fund vs Liquid Fund After Tax
• Silver ETF Sold: Which ITR and Holding-Period Rule Applies?

Primary sources

• Income Tax Department — section 49 previous-owner cost
• Income Tax Department — section 55 special cost rules
• Income Tax Department — sale of shares guidance