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Capital Gains (Securities)

Gifting Indian shares, and off-market transfers, as an NRI

A genuine gift of shares is not taxed on the giver, but the receiver and the exchange-control rules both need care.

You want to give Indian shares to a family member, or transfer them off-market rather than selling on the exchange, and you are unsure of the tax. A gift of shares works differently from a sale: the person giving them usually has no capital gain, but the person receiving them can be taxed on the value if they are not a close relative, and they inherit your cost for the future. On top of the tax, moving shares between a resident and an NRI as a gift runs into the exchange-control rules. Here is how a share gift or off-market transfer is treated.
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Last reviewed: 26 July 20266 min readReviewed by Preetesh Maloo, CA

The short answer

A genuine gift of shares, transferred without payment, is not a transfer for capital gains in the giver's hands, so the giver has no capital gain. The person receiving the shares takes the giver's original cost and holding period, so tax is deferred to when they eventually sell. But the receiver can be taxed on the fair market value of the shares as income if the giver is not a close relative and the value is more than ₹50,000; a gift from a relative is exempt. And where a resident gives shares of an Indian company to an NRI, or the reverse, it must comply with the exchange-control rules, which include value limits and, generally, RBI conditions and reporting.

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Related situations

The giver: no capital gain, cost passes on

For the person giving the shares, a genuine gift is tax-free. Under Section 47(iii), a transfer of a capital asset under a gift is not regarded as a transfer for capital-gains purposes, so no capital gain arises in the giver's hands, they are not taxed on the difference between what they paid and the shares' current value.

But the gain is not forgiven, it is passed on with the shares. Under Section 49(1), the person receiving the shares takes the giver's original cost, and they also inherit the giver's holding period, so a long-held investment stays long-term in their hands. So the tax simply waits until the receiver eventually sells, when it is computed from the giver's original cost and date. This is why a gift of shares within a family is a clean way to move a holding without triggering tax at the point of the gift.

The receiver, and the exchange-control rules

The receiver is where the tax can arise. Under Section 56(2)(x), if you receive shares without paying for them and their fair market value is more than ₹50,000, that value is taxed in your hands as income, unless the giver is a relative as the law defines it, a spouse, sibling, parent, child and a few others, in which case it is fully exempt. So a gift of shares between close relatives is tax-free on both sides; a gift from a friend or a distant relation is taxable on the receiver at the shares' value, which for unquoted shares is worked out by a prescribed formula.

The other layer, easy to forget, is exchange control. When a resident gives shares of an Indian company to an NRI, or an NRI gives to a resident, it is not just a tax matter; it must comply with FEMA. Broadly, a resident gifting shares to an NRI is subject to a value limit for the year and a cap as a small percentage of the company, must respect the sector's foreign-investment rules, and generally needs prior RBI approval and reporting. These conditions change, so a cross-border share gift should be checked against the current RBI rules before it is done, not after. A practising CA sets up the gift so the tax is clean on both sides and the exchange-control compliance is in place.

What's involved

What the CA actually does

  1. 1

    We keep the giver's side tax-free

    We structure the transfer as a genuine gift so no capital gain arises for the giver, and pass the cost and holding period to the receiver.

  2. 2

    We check the receiver's position

    We confirm whether the giver is a relative, so the receipt is exempt, or whether the receiver is taxed on the value, and compute that value correctly.

  3. 3

    We handle the exchange control

    We check a resident-to-NRI or NRI-to-resident share gift against the current FEMA limits and RBI conditions, and do the reporting.

  4. 4

    We set up the future sale

    We record the carried cost and holding period, so the receiver's eventual sale is computed correctly.

What to have ready

Documents you'll typically need

  • The shares to be gifted and their value
  • The relationship between giver and receiver
  • The residency of both parties, for FEMA
  • The giver's original cost and purchase date

Your destination country can change the details

Requirements differ from one consulate, university and visa route to the next, how recent the figures must be, how long funds must have been held, and which certificates are mandatory. We assemble the documents around the exact checklist you're applying under. To see how India's tax treaty with your country of residence affects related filings, set your country below or compare all 46 countries.

References on this page

  • A gift of shares is not a transfer for capital gains in the giver's hands (Section 47(iii)); no capital gain to the giver
  • The receiver takes the giver's cost and holding period (Section 49(1)); tax is deferred to their eventual sale
  • The receiver is taxed on the fair market value if the giver is not a relative and the value exceeds ₹50,000 (Section 56(2)(x))
  • A resident-to-NRI share gift must comply with FEMA, including value limits and generally RBI conditions and reporting

Frequently asked questions

Common questions

No. A genuine gift of shares is not a transfer for capital gains (Section 47(iii)), so the giver has no capital gain. The tax is deferred: the receiver takes your cost and holding period and is taxed only when they eventually sell.

Only if you are not a close relative. Under Section 56(2)(x), a receiver is taxed on the fair market value of shares received without payment if it exceeds ₹50,000, unless the giver is a relative, in which case it is exempt.

Yes, but it must comply with the exchange-control rules. A resident-to-NRI share gift is subject to value limits, a cap on the percentage of the company, the sector's foreign-investment rules, and generally prior RBI approval and reporting. Check the current rules first.

The giver's original cost, with the giver's holding period included, under Section 49(1). So when the receiver sells, the gain is computed from what the original owner paid, not from the value at the gift.

The exceptions that change the answer

Where the general rule stops applying to you

Every rule below has a carve-out, a cut-off date or a condition that flips the answer. These are the ones that decide real cases.

Taxable gift threshold under s.56(2)(x)

Right now: Rs 50,000 aggregate in a financial year

Where it works differently

The giver is a 'relative' as defined
No limit and no tax, whatever the amount.
Explanation to s.56(2)(x). The definition includes spouse, siblings, siblings of spouse, siblings of either parent, lineal ascendants and descendants, and their spouses.
The gift crosses Rs 50,000 from a non-relative
The WHOLE amount is taxable, not just the excess.
The threshold is a cliff, not an allowance.
Received on marriage, under a will, or by inheritance
Exempt regardless of amount or relationship.
Proviso to s.56(2)(x).
A resident gifts to a non-relative NRI
FEMA applies separately from tax. Satisfying s.56(2)(x) does not make it FEMA-compliant.
Two independent regimes: one under the Income-tax Act, one under FEMA.

Commonly got wrong

  • Only the amount above Rs 50,000 is taxed. The entire sum becomes taxable once the threshold is crossed.Cross Rs 50,000 and the whole gift is taxable.
  • A cousin is a relative. Cousins are NOT within the statutory definition.Relative means spouse, brother or sister, brother or sister of the spouse, brother or sister of either parent, any lineal ascendant or descendant of you or your spouse, and the spouse of any of these. Cousins are not on the list.

Related

If this matched your situation, these go further

Gifts between an NRI and family in India, when they are tax-free and when they are taxedWhen your Indian shares are merged or demergedTransmitting inherited shares when there is no nominee and no willNRI ITR filing (we file for you)DTAA TDS recoveryNRI estate planningCapital gains calculator

Gifting or transferring Indian shares?

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