What Happens to Capital Gains When Shares Are Received as a Gift?
Receiving shares as a gift does not reset the capital-gains history of the shares for the recipient. When the recipient later sells them, the previous owner's cost and relevant holding period generally continue to matter.
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 “What Happens to Capital Gains When Shares Are Received as a Gift”.
Why the original purchase price matters
Capital gains are generally measured from the cost of acquisition rather than simply from the value of the asset on the date it is gifted. Section 49 contains special cost rules for assets received under a gift or will.
Holding period after a gift
For assets acquired through the specified modes, the previous owner's period of holding can be relevant. This prevents the gift itself from automatically restarting the holding-period clock for capital-gains classification.
Example
If shares were acquired by the donor for ₹5,00,000 and later gifted to the recipient when worth ₹9,00,000, a later sale for ₹11,00,000 would generally be examined using the statutory previous-owner cost rules rather than simply treating ₹9,00,000 as the acquisition cost.
What about a gift from a relative?
Specified relative gifts are among the statutory exceptions under the gift provisions. Even when the receipt is not taxable under section 56(2)(x), the later capital gain still needs to be calculated using the applicable section 49 rules.
Practical checklist
- Identify the donor and relationship
- Retain evidence of the gift
- Obtain original acquisition cost
- Check corporate actions
- Track the complete holding period
- Retain sale documents
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?
