Income Tax NUDGE Notice – Gift of Shares from Husband to Wife

1. Correctness of Disclosure in ITR-2 (Schedule EI)

Disclosing the fair market value of the gifted shares under Schedule EI (Exempt Income) in ITR-2 is correct. Since the gift of shares is non-taxable under Section 56(2)(x), reporting it under Schedule EI ensures full transparency with the Income Tax Department while asserting its exempt status.

2. Exemption under Section 56(2)(x) & Important Clubbing Rules

• Gift Tax Exemption: Under Section 56(2)(x) read with Explanation (a)(i), a spouse is explicitly defined as a "relative." Consequently, receiving shares or any other property as a gift from a husband is 100% tax-exempt in the hands of the wife, regardless of the value.

• Clubbing of Income (Section 64(1)(iv)): While the receipt of the gift itself is non-taxable, any income generated from these gifted shares is governed by Section 64(1)(iv):

  • Dividends: Any dividend income earned on these gifted shares must be clubbed with the father’s total income and taxed at his applicable slab rates.

  • Future Capital Gains: When the mother eventually sells these shares, the resulting capital gains (short-term or long-term) will also be clubbed and taxed in the father’s hands. The cost of acquisition for calculating capital gains will be the original cost at which the father purchased the shares.

3. Nature of the NUDGE Notice & Required Action

NUDGE communications are automated, system-generated advisories issued under the Income Tax Department's data analytics framework. They are sent when the system detects high-value transactions in the Annual Information Statement (AIS) or large exempt income disclosures to encourage voluntary verification.

Since the gift is genuine, legally exempt under Section 56(2)(x), and was already reported under Schedule EI, no revised return or immediate action is required, provided all dividend income (if any) was correctly reported by the father.

4. Portal Verification & Clarification Process

If the e-filing portal shows no pending items under Pending Actions $\rightarrow$ Compliance Portal or e-Verification:

• There is no online facility or requirement to submit an unsolicited reply or letter.

• If the portal status changes in the future to reflect an active e-verification prompt, navigate to the Compliance Portal, locate the specific AIS transaction entry, and select the response option "Information is correct / Taxable in hands of another person (if dividend clubbing applies)".

5. Essential Documentation to Maintain

To handle any potential inquiry under Section 142(1) in the future, assemble and archive the following documents:

1. Executed Gift Deed: A signed gift deed (stamped/notarized) clearly stating the transfer of specified shares out of natural love and affection without monetary consideration.

2. Demat Transaction Statements: Copies of the Delivery Instruction Slip (DIS) and Demat account statements showing the debit from the father’s Demat account and credit to the mother’s Demat account.

3. AIS Records: Downloaded copies of the AIS for both parents for AY 2025-26 reflecting the transaction.

4. ITR Receipts: Copies of the filed ITR-2 (including Schedule EI) for the mother and ITR filing for the father for AY 2025-26.

Receiving shares as a gift from a spouse is fully exempt from tax under Section 56(2)(x), and reporting it under Schedule EI in ITR-2 is the correct treatment. The physical NUDGE letter is merely an automated advisory, so no further filing or response is necessary as long as the e-filing portal lists no active compliance requests. Simply ensure that all documentary evidence (gift deed, DIS slips, and Demat statements) is preserved, and verify that any dividend income or future capital gains from these shares are properly clubbed and reported in the father's income tax return under Section 64(1)(iv).

Gift of shares to a spouse is tax-exempt in the hands of the recipient. Shares gifted between spouses fall under the relative exemption in Section 56(2)(x), so no gift tax or income tax applies on the transfer itself.

But here is where NUDGE notices usually come from: Section 64(1)(iv) requires that any income earned from those gifted assets (dividends or capital gains on eventual sale) is clubbed back into the HUSBAND'S income, not taxed in the wife's hands.

So the NUDGE is likely because the tax department saw capital gains or dividend income reported in the wife's ITR on those shares, when that income should have appeared in the husband's return.

What to do:
1. Check your compliance portal (pending actions) for the NUDGE notice and submit the online response.
2. If the income was correctly taxed in the husband's return (clubbed), explain that in the response with the relevant assessment year ITR details.
3. If it was not clubbed, consider filing a revised return to add the clubbed income to the husband's ITR before the December 31 deadline.

For the full picture on gift tax rules and the clubbing provisions that follow, this [gift tax guide for AY 2026-27](https://taxgarden.in/blog/gift-tax-rules-india-section-56-2-x-ay-2026-27) covers both the exemption and the Section 64 clubbing requirement.