Gifting of Shares: In India presenting something which possess some value to friends, relatives and family members and the other group of persons is a very common thing to happen.Indian income tax act has provided some provisions in relation to the gifting property. In order to avoid the future problems which could occur due to non compliance it is advisable to go through the laid down norms to while gifting anything to somebody. Now check more details regarding “gifting of shares” from below…..
Nowadays almost all the individuals are maintaining their shares in demat account. If any one doesn’t have a demat account but have shares in physical form it is better for them to open a demat account so that they can be easily converted into dematerialized form. The following procedure happen only in this case.
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An off market transaction :
This transfer happens in the out side of the trading market and doesn’t involve any kind of formalities as required to be followed in case of a market transaction.
Terms to be known :
1) Donor & donee :
In this transfer the person who gifts the shares is called as donor and the other one who receives it is termed as donee.
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2) Delivery instruction slip (DIS) :
Shares are maintained in a demat account as we use a bank to look after our money. Demat account is provided by a specific Institutional bodies called as Depository participants. Delivery instruction slip is a form which is used by the demat account holder to instruct his Depository participant to transfer the shares the details of which are given in DIS to another demat account (donee’s). We can say that this is similar to the negotiable instruments such as a cheque , bill of exchange , DD etc. because like a cheque DIS is also used to transfer certain portion of your account balance to another but the difference is money is involved in cheque whereas shares are involved in DIS.
Contents of DIS :
- A)Name of the Donee
- B)Donee’s Demat Account Details
- C) Share/Stock to be transferred
- D) ISIN Number of the Company
- E) Quantity of the Shares to be transferred
3) Gift deed :
It is a deed which will be executed between the donor and donee on non judicial stamp paper describing the things involved in gift.
This deed stands as a legal evidence of the gift .
(1) First of all the donor has to instruct his Depository participant where the shares are maintained ,by issuing DIS which contains the details of shares and the donee’s demat account & Depository participant. DIS acts as a communication from the donor to transfer the shares described by it to the donee.
2) Donee has to send a receipt instruction to his Depository participant to formally accept the shares.
3) It is highly recommended to execute a gift deed between the donor and donee describing the things involved in gift and the value of the property transferred through that deed. This helps to solve any future legal or tax related disputes.
In my further post I will cover the tax implications arising on gift.