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How to gift stocks to your friends and relatives?

Gifts to a close relative as defined in the Income Tax Act are not taxable. It gets taxable for non-relative only when the value of the gift crosses Rs 50,000 in a year

How to gift stocks to your friends and relatives?

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When it comes to gifting, some people go out of their way to gift a useful item. If you are in the stock market, you would have often thought of gifting shares or mutual funds to your loved ones to help them kick start their investment journey or just add on to their already existing portfolio. However, the process to do so is quite complex. Simplifying the same, digital broking firm Zerodha has now announced a digital platform for gifting stocks, ETFs, and gold bonds to friends and loved ones.

"One of the things we always wanted to do at Zerodha for a long time was to make gifting stocks, mutual funds, and bonds easier, but making the process seamless and online wasn't possible. Thanks to the recently introduced CDSL's e-DIS (Electronic delivery instruction slip), we now have built a platform to gift stocks, ETFs, and gold bonds to your friends and loved ones," says Nithin Kamath, Founder & CEO, Zerodha.

If otherwise, you have to gift stock or a bond, the process is entirely physical. The donor has to fill up a delivery instruction slip (DIS) and submit the same to his Depository Participant (DP). The DIS will have details such as names and DP IDs of the donor and donee, client ID and number of shares to be transferred etc. The transfer date needs to be mentioned too. Once you submit the DIS, the transfer will get executed on the mentioned date. However, the shares will still be with the DP of the donee. Now, the donee has to fill up a receipt instruction and submit it to his DP. Once that happens, the shares received from the donor's DP will be credited to donee's Demat account.

What Zerodha's platform offers

What Zerodha has done is to move the physical process to a digital platform. However, unlike the physical process, in which you can transfer shares to any brokerage account, in the case of Zerodha, the donor and donee both should have an account with the Zerodha.

"The sender has to just enter the mobile number of the recipients, verify the Demat account details of the recipient and authorise the transfer of stocks. If the recipients don't have a Zerodha account, they can open an account completely online in a few minutes and then accept the gift," says Zerodha in a press release.

How to gift mutual funds

Gifting a mutual fund is not an easy process either. In most of the mutual fund schemes, investment or payment (either lumpsum or SIP) through the third party is not possible. If you are doing it for a minor, then again, the account details of minor's parent will be required. "It is possible only through parent or legal guardian where minor bank account is mandatory (joint account of the minor with the parent). There are very limited schemes like HDFC Children's Gift Fund, ICICI Pru Child Care Fund etc where investment amount can come from the third party (donor) where guardian can be a parent or legal guardian and minor bank account is available," says Suresh Sadagopan, founder, Ladder7 Financial Advisories.

"Another important thing is that investment mode of holding should be similar of the minor bank account holding. For MF investment where father is a guardian, we need to make sure he is a guardian in the bank as well," Sadagopan adds.

Zerodha says they will soon enable gifting of mutual funds to minors.

Tax application on gifting

Gifts to a close relative as defined in the Income Tax Act are not taxable. It gets taxable for non-relative only when the value of the gift crosses Rs 50,000 in a year.

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