Gift of shares in pvt ltd company.

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

18 September 2013 Dear professionals ,
in case of pvt limited company if shares are gifted to daughter & son in law , Does any kind of tax liability arises to any of the party involved in gift ,if shares are acquired & gifted in same year does have any impact ? whether any kind of tax liability arises in this case?

Querist : Anonymous

Querist : Anonymous (Querist)

19 September 2013 Experts, pls resolve the query

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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25 July 2024 In the context of gifting shares of a private limited company to family members (daughter and son-in-law), here are the key tax implications to consider:

1. **Gift Tax Liability**: Under Indian tax laws, there is no gift tax applicable for gifts made to specified relatives, which includes daughters and sons-in-law. Therefore, the act of gifting shares from one individual to another (or to an HUF) does not attract any gift tax liability.

2. **Income Tax Implications for the Donor (Giver)**:
- **Capital Gains Tax**: When shares of a private limited company are gifted, the transaction is treated as a transfer for the purpose of capital gains tax. The capital gains tax implications for the donor depend on the following factors:
- **Cost of Acquisition**: The cost to the donor will typically be the cost at which they acquired the shares.
- **Fair Market Value**: The fair market value of the shares on the date of transfer/gift.
- **Taxable Event**: If the fair market value of the shares on the date of transfer exceeds the cost of acquisition to the donor, capital gains tax may be applicable. Long-term or short-term capital gains tax rates will apply depending on the holding period of the shares.

3. **Income Tax Implications for the Recipients (Donees)**:
- **Cost of Acquisition**: For the recipients (daughter and son-in-law), the cost of acquisition of the gifted shares will typically be considered as the same as the donor's cost of acquisition.
- **Future Capital Gains**: When the recipients eventually sell these gifted shares, the capital gains tax will be computed based on the difference between the sale consideration and the cost of acquisition, as adjusted for indexation benefits if applicable.

4. **Impact of Acquiring and Gifting Shares in the Same Year**: Acquiring shares and immediately gifting them in the same year does not have a specific impact under income tax laws. The transaction will still be subject to the capital gains tax provisions as mentioned above, based on the fair market value and cost of acquisition.

5. **Documentation and Compliance**: It is important to document the gift transaction properly with a gift deed and to comply with any procedural requirements under company law (such as updating the shareholding pattern in the company's records).

In conclusion, while there is no gift tax liability for the gift of shares to specified relatives, the transaction is subject to capital gains tax implications for the donor based on the fair market value and the cost of acquisition. Recipients inherit the cost of acquisition and are liable for capital gains tax when they eventually sell the gifted shares. It's advisable to consult with a tax advisor or chartered accountant to ensure compliance and proper tax planning for such transactions.

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