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Can shares be gifted to family members or to a HUF?

If any asset held in an individual capacity is transferred by way of a gift to the HUF, the same would be considered as income of the individual even after such transferPremium
If any asset held in an individual capacity is transferred by way of a gift to the HUF, the same would be considered as income of the individual even after such transfer

  • A gift of shares to family member as well as the HUF will be tax exempt as it would be classified as ‘property received from a relative’ which is specifically exempt on account of section 56 (2)(x) of the Income Tax Act, 1961

Can we gift shares to some other family members (Sister or HUF)? In that case, will the dividend be taxable to us or to them? Can HUF or sister again gift back us the shares when required? Is there any frequency on which how many times we can gift? What is the best way to save tax on dividend from unlisted public limited company?

-Name withheld 

(Query answered by Rishabh Shroff, partner, Cyril Amarchand Mangaldas)

Since your query is unclear, we have assumed that you are desirous of either gifting shares to your sister or your HUF. We have also assumed that you are the karta of the HUF.

A gift of shares to your sister as well as the HUF would be tax exempt as it would be classified as ‘property received from a relative’ which is specifically exempt on account of section 56 (2)(x) of the Income Tax Act, 1961 (“IT Act"). Any dividend received on such shares would be taxed in the hands of your sister after such a gift of shares. However, it is pertinent to be mindful of the anti-avoidance provisions under the IT Act may be attracted.

Alternatively, if any asset (i.e. shares in your case) held in an individual capacity is transferred by way of a gift to the HUF, the same would be considered as income of the individual even after such transfer. However, please note that gift of assets to the HUF may attract clubbing provisions under the IT Act.

We recommend consulting a practising tax attorney or a chartered accountant to assist you with effective tax planning strategies.

(Send your queries and views at mintmoney@livemint.com)

 

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