New laws beleaguered against gifting shares in Demat format with effect from April 1, 2019, the legal terminology being ‘Transfer of Shares.’ While the transfer of shares takes place, the individual giving away is referred to as the ‘donor,’ while the other party is christened the ‘donee’. According to the Income Tax Act, gifts to close relatives stand tax-exempt. If, however, you want to gift some kind of shares to a non-relative, whatever it may be, shares of a Demat account would be subject to tax if they exceed in a year the limit of Rs. 50,000.
What is the procedure for the transfer of shares?
You can keep your bank account to be eligible for a free demat account when in need of one. This is the holding, linked to the trading portal with which one can buy or sell shares. You may think of gifting some shares to your close relatives. Shares prove to be a very good instrument to teach your young ones to start investing. This is how you can transfer shares:
Off-market Transaction – Start off an Off-Market Transaction because you are the donor. Which means it will be a settlement of shares between two parties mutually without the stock exchange being involved. Here, you have to give a delivery instruction slip to your Demat account provider (DP or depository participant) for the transfer of shares from your Demat account (donor account) to the donee’s Demat account. It can be done through an online demat account.
Details to Fill: A form for the delivery instruction slip book will be filled in with the following specifications:
- Name of person in whose favor the shares will be gifted
- Details of donee account
- Stock or share to be transferred/gifted
- The company ISIN number
- The amount of shares to be given as a gift
- On the Donee’s part, the gift receiver has to give a receipt of instruction to his own Demat provider (DP) to accept the shares thus received. The donee can also provide a standing instruction for acceptance from his DP.
- Gift Deed For legal purposes, and for an inquiry as income tax, it is recommended that gift donors undertake the transfer through a gift deed on legal stamp paper when the transfer of shares is done.
Conclusion
Whether you transfer shares through the online demat account, you need to fill in a delivery instruction slip and submit it in person. Also, the gift of shares cannot be undone once it has been completed.