Understanding the Gift Deed for Shares: A Comprehensive Guide

The act of gifting shares is a common practice among individuals, often serving as a means of wealth transfer to loved ones, or charitable donations. The legal instrument that facilitates this transfer is known as a Gift Deed. 

This blog aims to delve into the nuances of the Gift Deed for shares, providing insights into its creation, benefits, and tax implications

1. Concept of a Gift Deed for Shares:

A Gift Deed for shares is a legal document that outlines the voluntary transfer of shares from the owner (donor) to another person (donee) without any exchange of money or consideration. It serves as proof that the transfer was made willingly, and not under duress or coercion.

2. Preparation of a Gift Deed:

While there are no strict formats for a gift deed, it generally contains crucial details such as the donor and donee's names and addresses, the details of the shares being gifted (number of shares, company name, etc.), and the date of the gift. It is advisable to create the deed under the supervision of a legal expert to ensure all legal requirements are met.

3. Execution and Registration:

Once prepared, the gift deed must be signed by the donor and attested by at least two witnesses. Though registration of a gift deed for movable property (like shares) is not mandatory in India, it is recommended for the sake of clear legal title and to avoid potential disputes.

4. Benefits of Gifting Shares:

Gifting shares can serve various purposes. It allows the donor to contribute towards the financial stability of a loved one, reduce their taxable estate, or support a charitable cause. For the donee, it's a tax-efficient way to receive assets as gifts are not considered income in India.

5. Tax Implications:

In India, gifts are subject to the provisions of the Income Tax Act, 1961. While gifts to relatives or under certain specified conditions are exempted from tax, others could be taxable if the aggregate value of the gifts received in a year exceeds INR 50,000. Furthermore, when the shares are eventually sold by the donee, they may be subject to Capital Gains Tax.

6. Revocation:

A gift deed is irrevocable once made, meaning the donor cannot cancel it or take back the gifted shares, except in certain exceptional circumstances, like if the gift was made due to fraud, coercion, or undue influence.

Gifting shares is a process that requires careful thought and legal compliance. A well-executed Gift Deed for shares provides a smooth transfer process, legally valid documentation, and can offer certain tax advantages. It is always prudent to seek legal counsel to ensure that the deed is drafted correctly, thereby safeguarding the interests of both the donor and the donee.