Gift - Shares and Securitites - from Father

[Jignesh Shah]

Dear Expert, My client has a typical problem. She is working with a Financial Services company. She started investing in stock markets from year2001 onwards. She had her D-mat account in her maiden name with her husband being the joint holder. She invested / traded in the same account till 2006. Then she had some disputes with her husband for some reasons and fearing the worst she transferred the shares in her D-MAT account to her father's account in his single name. This transaction took place in 2008. She closed her D-MAT account. The dividend for the same was credited to a bank account jointly held by her father and her. Now the disputes with her husband are settled. She wants to transfer the shares back from her father's account to her new D-MAT account. Can she take Gift from her father of the shares which she had tranferredr? There has been no transaction in her father's D-MAT account sinc the shares were transferred. Also, her father has not shown the dividend income in his return. The portfolio is worth a significant amount. What is the best way to take the custody of the shares in her account legally?

[KRISHNAN SURYANARAYANAN]

Who was paying tax after transfer to father's account? If father has not been paying tax but only daughter then there was no real  transfer in the income-tax sense. Even father had been paying tax shares can be transferred now and will not be hit by the restrictions of section 56(2) as daughter has been included as a relative in the explanation to section 56(2).This set of transactions will not be treated as cross transactions as what is given to father is taken by daughter and shares  being  movable properties can be transferred through physical handing over of documents and does not require registration at the registration department. 

[Jignesh Shah]

After the shares were transfered to father's account, there were no transactions except the dividend received and hence there was no tax liability as such. Father had not declared the dividend income in his returns either. Now if the shares are taken back by the daughter by executiing a gift-deed on Rs. 100 stamp paper, can there be any legal complications? Can it be done any time now?

[KRISHNAN SURYANARAYANAN]

No problem is envisaged and the method suggested in the question can be adopted.

[Jignesh Shah]

Dear Mr. Krishnan, does the client need to show the same in her IT Returns for the year as the same is anyway exempt? What is a proper practice? Please let me know.

[KRISHNAN SURYANARAYANAN]

In my considered opinion there is no need to show it in the return as the receipt is not income at all.

AI Summary

Gift of shares between relatives can be reconveyed by deed and is exempt from taxation as gift receipt. Transfers of shares between close relatives are covered by a relative exemption to the gift provisions; a gift of the shares back to the daughter can be effected by executing a gift deed and transferring the securities through demat procedures without registration formalities. The advisers note absence of trading in the father's account (other than dividends), and advise that the gift receipt is not income requiring disclosure in the daughter's return, though dividend receipt taxation depends on reporting by the recipient.