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Regarding transfer of Capital Assets

22 February 2024

An Indian resident owns securities of companies listed in a foreign country. The resident's children are non-residents living abroad. He wants to provide money for his children. If the resident is planning to dispose of his holdings is it better to liquidate them or can he gift the securities to his children? Is there a requirement to file forms in the portal or get approval from statutory authorities in India, in case of transfer of the securities? Will the provisions regarding taxability of gift be applicable here?

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4 Replies

sabyasachi mukherjee (27597 Points)
Replied 22 February 2024

Transfer of capital assets
Is possible

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Yasaswi Gomes new (Finance ) (4524 Points)
Replied 22 February 2024

An Indian resident who holds securities of foreign-listed companies has a couple of options when it comes to providing financial support to their non-resident children living abroad. Let's delve into the details:

1. **Liquidation vs. Gifting**:

- **Liquidation**: If the resident chooses to **liquidate** their holdings, they would sell the securities and receive the proceeds in cash. They can then transfer the money to their children.

- **Gifting**: Alternatively, the resident can **gift** the securities directly to their children. This involves transferring ownership of the securities without selling them.

2. **Tax Implications**:

- **Sender (Resident)**:

- The sender of the gift (the resident) is **not liable to pay taxes** on the transfer of securities. The Gift Tax Act (GTA) has been abolished, and gift transactions are expressly excluded from the definition of transfer under Section 47 of the Income Tax Act.

- **Recipient (Children)**:

- Under **Section 56 (2)** of the Income Tax Act, the recipient (children) is liable to be taxed for gifts of movable property (including shares, ETFs, mutual funds, etc.) without consideration, exceeding the fair market value of ₹50,000.

- The income from such gifts should be reported under the head **"Income from Other Sources"** in the Income Tax Return, and tax at slab rates should be paid.

- However, there are exemptions:

- Gifts received from **relatives** (including siblings, spouse, and lineal ascendants or descendants) are exempt.

- Gifts received on the occasion of **marriage** are exempt.

- Gifts received by **inheritance** are exempt.

3. **Sale of Gifted Securities**:

- If the children receive shares, ETFs, or mutual funds as a gift and subsequently **sell** them, the resulting income would be taxable under the head **"Income from Capital Gains."**

- The holding period for determining the nature of capital gains (short-term or long-term) would be from the date of acquisition by the previous owner until the date of sale.

- The capital asset's acquisition cost would be determined based on the previous owner's purchase price to compute the capital gains.

- Proper documentation, such as a **gift deed**, should be maintained by both the sender and recipient to justify the genuineness of the gift transaction.

4. **Statutory Approvals and Forms**:

- There is no specific requirement to obtain approval from statutory authorities in India for transferring securities as gifts to non-resident children.

- However, it is advisable to consult a **qualified tax advisor** to ensure compliance with all relevant regulations and to handle any specific paperwork or forms that may be necessary.

In summary, while gifting securities can be a tax-efficient way to provide financial assistance to non-resident children, it's crucial to follow the legal guidelines and maintain proper documentation. Always seek professional advice to make informed decisions. 🌟

Source: Conversation with Bing, 22/02/2024

(1) Are there any income tax implications on the gifting of shares? - Zerodha. https://support.zerodha.com/category/your-zerodha-account/transfer-of-shares-and-conversion-of-shares/articles/tax-implication-on-gifting-of-stocks.

(2) Tax on Gifted Shares & Securities - Learn by Quicko. https://learn.quicko.com/tax-gifted-shares-securities.

(3) Are There Income Tax Implications On Gifting Of Shares?. https://www.hdfcbank.com/personal/resources/learning-centre/invest/know-the-income-tax-implication-on-gifting-of-shares.