How Are Capital Gains Taxed on Gifted Shares?
Gifted shares require two separate tax questions: whether receiving the shares creates taxable income, and how capital gains are calculated when the recipient later sells them. The capital-gains cost and holding-period rules generally look back to the previous owner.
Quick Answer
For shares, calculate the capital gain from sale consideration less the applicable cost of acquisition and eligible transfer expenses, then determine the short-term or long-term character and apply the rate rules for the relevant year. The relevant asset or transaction named in this question should be identified before applying the capital-gains computation and rate rules. This page specifically addresses “How Are Capital Gains Taxed on Gifted Shares”.
Is receiving gifted shares taxable?
Shares and securities are specified movable property for the gift provisions. A gift received without consideration can be taxable under section 56(2)(x) when the applicable conditions are met, subject to statutory exceptions such as gifts from specified relatives, gifts under a will or inheritance, and certain other specified circumstances.
What is the cost of gifted shares?
For capital-gains purposes, section 49 generally provides that the cost of an asset received under a gift is the cost for which the previous owner acquired it, subject to the statutory rules.
Does the donor's holding period count?
Yes, the previous owner's holding period is generally relevant for assets acquired through modes covered by section 49. This can affect whether the eventual sale is treated as short-term or long-term.
Example
If a relative gifts shares that originally cost the donor ₹1,50,000 and the recipient later sells them for ₹3,00,000, the recipient should preserve the donor's acquisition records. The market value on the gift date is not automatically substituted as the capital-gains cost merely because the shares were gifted.
Gift and capital-gains records
- Gift deed or other evidence of the gift
- Donor's purchase records
- Demat transmission records
- Broker statements
- Corporate-action history
- Sale contract note
Important distinction
The tax treatment of the gift itself should not be confused with the capital gain on a later sale. A taxpayer may need to examine both provisions independently.
Related EZTax Questions
- What Is Capital Gain in Income Tax?
- What Is Short-Term and Long-Term Capital Gain?
- How to Calculate Capital Gain From Shares?
- What Is Cost of Acquisition for Capital Gains?
- Which ITR Form Should I Use for Capital Gains?
