India's financial literacy has taken a different turn in the last decade with the investment habits have changed to an extent that gifting financial assets such as shares and mutual funds is increasingly being used as a tool for wealth transfer and financial planning. The gifting has ranged from parents transferring blue-chip shares to children, to investors passing on mutual fund units as part of estate planning, financial gifting is gaining momentum.

However, one wrong move could trigger unexpected liabilities, and it is crucial to understand that when you gift stocks or mutual funds, who really pays the tax — the giver or the receiver?

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Taxation on the transfer of equity shares or mutual fund holdings depends on whether the transfer is made to immediate relatives, such as spouse, parents or children.

Kumarmanglam Vijay, Partner and Head of Practice - Direct Tax, JSA Advocates & Solicitors told Times Now that the gifting of equity shares and mutual fund units involves three distinct tax moments, at the donor's end, a genuine gift triggers no tax.

"At the recipient's end, the law exempts gifts from relatives (as defined), on occasion of marriage, under a will or by inheritance, from specified institutions or other specified categories. Outside these categories, if the aggregate fair market value of such assets received in a year exceeds Rs 50,000, the entire fair market value becomes taxable. When the recipient eventually sells, capital gains tax shall apply."

"Also, gifting may attract clubbing provisions, meaning the income/ gains from gifted assets may be taxed in the hands of the donor.”

Lokesh Shah, Partner at CMS INDUSLAW said, "The transfer of equity shares and mutual fund units by way of gift among specified relatives (such as a spouse, siblings, spouses of siblings, and lineal ascendants and descendants), as prescribed under the Income Tax Act, 2025 is exempt from tax. This exemption applies to both the transferor and the recipient."

Explaining the rationale behind the gifting of shares, he said the gifting of equity shares is relatively straightforward. "In the case of listed equity shares, the transfer can typically be effected through Depository Instruction Slips. Historically, the gifting of mutual fund units has been more complex. Most mutual fund holdings in India are maintained in Statement of Account (SoA) form rather than in dematerialised form."

In the past, he told that gifting such units or transferring them to a private family trust often required conversion into demat form (in some cases involving a sale and repurchase), which was both time-consuming and potentially tax-inefficient.

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