Gift of Shares

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derastra (Querist)
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10 December 2009 I wish to know, whether a NR company can gift shares to a Resident Company. Everywhere in the Income Tax Act written about Gift, it is mentioned for Individual(s) & HUF. There is nothing mentioned for companies. My query is whether it is possible and if yes, what would be the impact on Indian Company receiving this gift with respect to Income Tax ?

derastra

derastra (Querist)
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10 December 2009 1

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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25 July 2024 Under Indian tax laws, the concept of 'gift' is primarily applicable to individuals and Hindu Undivided Families (HUFs). There are specific provisions and exemptions related to gifts made between individuals and HUFs, but the Income Tax Act does not explicitly provide for the gifting of shares between companies.

However, transfers of shares between companies can still occur, but they are typically treated under the provisions related to transfer of capital assets rather than as gifts. Here are some considerations:

1. **Transfer of Shares between Companies**: When shares are transferred between companies, it is generally treated as a transfer of capital asset. The transfer could attract capital gains tax in India, depending on various factors such as the holding period, nature of shares (listed/unlisted), and the method of transfer.

2. **Tax Implications for the Recipient Company**:
- **Capital Gains Tax**: If the shares are transferred at a value different from their cost of acquisition by the recipient company, capital gains tax could apply. The capital gains would typically be computed as the difference between the sale consideration (fair market value of shares) and the cost of acquisition (typically the purchase cost of the shares).

- **Stamp Duty**: Depending on the state in which the recipient company is registered, stamp duty may be applicable on the transfer of shares. This duty is levied on the market value of the shares being transferred.

3. **Documentation**: Even though it may not be treated as a gift under the Income Tax Act, proper documentation is crucial for any transfer of shares between companies. This includes a share transfer agreement, board resolutions of both companies approving the transfer, and compliance with regulatory filings (if any).

4. **Professional Advice**: It is advisable to seek guidance from a qualified tax advisor or a chartered accountant to ensure compliance with all applicable tax laws and regulations. They can provide specific advice tailored to your situation, considering factors like the type of shares, valuation issues, and the potential tax implications.

In summary, while the Income Tax Act does not provide for the gifting of shares between companies in the same way as it does for individuals and HUFs, such transfers are possible under the framework of capital gains tax. It is essential to carefully consider the tax implications and seek professional advice to handle the transaction appropriately.

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