Share Transfer in India: Process, Forms, Tax and Stamp Duty

Brief: A share transfer in India may involve company-law procedures, stamp duty, income-tax and, if a non-resident is a party, FEMA compliance. This article explains the process for physical and demat shares, including review of the company’s Articles, pricing, execution and delivery of Form SH-4 where applicable, registration of the transfer, and maintenance of company records. It also covers capital gains, the potential tax consequences of transferring unquoted shares below fair market value, stamp duty, tax deduction on payments to non-residents, and Form FC-TRS reporting. A separate table identifies the principal forms and information commonly required. The applicable income-tax provisions and return forms must be selected according to the tax year of the transfer.

Process for Transfer of Shares in India – Companies Act, Income-tax Act and Stamp Duty Act, with Relevant Forms

Short Summary

A transfer of shares of an Indian company, whether between two residents or involving a non-resident, is not a single-law event. It touches the Companies Act, 2013 for corporate registration, the income-tax law applicable to the tax year for capital gains and, in some situations, valuation-based taxation, and the Indian Stamp Act, 1899 for stamp duty. Where a non-resident is on either side, the FEMA framework may also impose pricing, eligibility and reporting requirements. This article walks through the process step by step under each framework and lists the forms involved, with the basic information each one requires.

Short Answer

A physical transfer of shares generally proceeds through execution of Form SH-4, payment of applicable stamp duty, delivery of the form and share certificate to the company, and registration of the transfer in accordance with Section 56 of the Companies Act, 2013. A demat transfer follows the depository process instead. The transferor must consider capital gains and, for an unquoted share sold below fair market value, the seller-side deemed-consideration provision. A below-value acquisition may also have tax consequences for the transferee. Where a non-resident is involved, FEMA pricing and reporting, including Form FC-TRS where applicable, must be examined separately.

Applicable Legal Provisions

• Companies Act, 2013, Section 56: Governs registration of a physical transfer and requires delivery of the certificate for transferred securities within one month of the company’s receipt of the instrument of transfer, unless a legal prohibition or order applies.
• Companies (Share Capital and Debentures) Rules, 2014, Rule 11: Prescribes Form SH-4 for an instrument transferring securities held in physical form and requires its delivery to the company within 60 days of execution.
• Companies Act, 2013, Section 58: Deals with refusal to register a transfer and the transferee’s remedy. The company’s Articles and its internal authorisation should be checked for the approval process.
• Income-tax law: Capital gains, holding period, rates, recipient-side taxation of property acquired below fair market value, and deemed consideration for a below-value transfer of unquoted shares must be considered under the Act applicable to the tax year. The Income-tax Act, 1961 continues to govern earlier years under the transition provisions; the Income-tax Act, 2025 applies from 1 April 2026. :chatgpt-content-reference{index=”0″}
• Section 56(2)(x) of the Income-tax Act, 1961: For years governed by that Act, a qualifying acquisition of shares for less than their prescribed fair market value may create income in the recipient’s hands, subject to the statutory threshold and exceptions.
• Section 50CA of the Income-tax Act, 1961: For years governed by that Act, fair market value may be deemed to be the seller’s consideration where a share other than a quoted share is transferred below its prescribed fair market value.
• Section 195 of the Income-tax Act, 1961: For years governed by that Act, tax deduction must be considered when a payment to a non-resident contains a sum chargeable to tax in India. The applicable provision under the Income-tax Act, 2025 should be used for later tax years.
• Indian Stamp Act, 1899, Sections 9A and 9B and Schedule I, Article 56A: Govern stamp duty on transfers of securities through a stock exchange or depository and otherwise than through them. The rate for a delivery-based transfer of a security other than a debenture is 0.015%.
• Foreign Exchange Management (Non-debt Instruments) Rules, 2019 and related reporting regulations: Govern the relevant eligibility, pricing, payment and reporting conditions where a resident and a non-resident transfer equity instruments.

Step-by-Step Process

Legal Position Under Each Law

A. Companies Act, 2013

Section 56 governs registration of a physical share transfer. The company ordinarily requires a proper instrument in Form SH-4, duly stamped, dated and executed, delivered within the prescribed 60-day period with the share certificate or, where applicable, the letter of allotment. This instrument requirement does not apply in the same way to a transfer between persons whose beneficial ownership is recorded by a depository.

For a private company, the Articles may contain a right of first offer, pre-emption right or other restriction. These provisions and the company’s internal authorisation must be checked before registration. The company updates its Register of Members and delivers the certificate within the period specified in Section 56(4). If it refuses registration, Section 58 governs notice of refusal and the available appeal.

B. Income-tax

The transferor must determine whether a taxable capital gain or loss arises, the holding period, the allowable cost and transfer expenses, and the applicable rate. The Income-tax Act, 1961 governs tax years beginning before 1 April 2026 under the transition provisions; the Income-tax Act, 2025 applies to tax period 2026–27 onward. The relevant provisions and return form must therefore be selected for the actual date of transfer. :chatgpt-content-reference{index=”1″}

For a below-value transfer of unquoted shares, the recipient-side provision is only part of the analysis. Under the 1961 Act, Section 50CA may deem fair market value to be the seller’s consideration, while Section 56(2)(x) may tax the recipient on the difference, subject to their respective conditions and exceptions. Corresponding provisions under the 2025 Act should be applied for later tax periods. A valuation is particularly relevant in family and closely held company transactions priced at face value or book value.

C. Indian Stamp Act, 1899

The rate for a delivery-based transfer of a security other than a debenture is 0.015% under Schedule I, Article 56A. For a physical transfer outside a stock exchange or depository, Section 9B applies and the transferor pays the duty. For an off-market demat transfer, the depository collects duty from the transferor under Section 9A. The rate is uniform, but payment for a physical transaction must follow the collection procedure applicable in the concerned State. :chatgpt-content-reference{index=”2″}

Where shares are genuinely gifted without consideration, the government’s securities stamp duty FAQ states that an off-market gift does not attract duty on the transfer. A separately executed gift deed must be considered as a separate instrument under the applicable stamp law. The firm’s earlier articles discuss stamp duty on share transfers and gifts of shares.

D. FEMA (where a non-resident is involved)

A transfer of shares of an Indian company between a resident and a non-resident must be tested against the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 and the payment and reporting regulations. Subject to the applicable exceptions, a resident-to-non-resident sale must not be priced below the prescribed value, while a non-resident-to-resident sale must not exceed it. For an unlisted company, valuation generally uses an internationally accepted methodology on an arm’s-length basis with the required certification.

Where Form FC-TRS applies, the resident transferor or transferee files it through the RBI FIRMS system within the prescribed period. The filing deadline should be tracked from the transfer of equity instruments or receipt or remittance of consideration, whichever is earlier, rather than left until the remittance process is complete. Gift transfers require a separate review of the applicable permission, conditions and reporting requirements.

Relevant Forms and the Basic Information Each One Requires

Practical Interpretation

• Check the holding mode first. Determine whether Rule 9B requires dematerialisation before the holder can transfer the shares. If the transfer proceeds through a depository, Form SH-4 is not the transfer instrument.
• Document the price. For a family or related-party sale, consider recipient-side taxation and the seller-side deemed-consideration rule for unquoted shares, where applicable. Use the valuation method prescribed for the relevant tax year.
• Keep a complete transfer record. Retain the SH-4 or demat instruction, stamp duty evidence, valuation, applicable approval, and updated Register of Members.
• Plan FEMA compliance before completion. Where a non-resident is involved, check eligibility, pricing, valuation certificate, payment route and FC-TRS reporting at the outset.
• Check tax deduction and remittance forms separately. A payment to a non-resident calls for a chargeability analysis; Forms 15CA and 15CB concern specified outward remittances and are not automatically required merely because consideration is received from abroad.

Conclusion

A share transfer requires coordination between company-law registration, stamp duty, income-tax and, where a non-resident is involved, FEMA. Form SH-4 is the principal instrument for a physical transfer; demat transfers follow the depository process. A reliable file should contain the transfer documents, stamp duty evidence, valuation, company approvals and updated records, together with applicable tax and FEMA filings. Pricing requires attention on both sides of an unquoted-share transfer: a below-value price can have consequences for the seller as well as the recipient. The provisions and forms must be matched to the transfer date and tax year.

FAQs

Q1. Is a Board resolution mandatory for every share transfer?

The company must follow its Articles and applicable internal authorisation when registering a transfer. A Board or authorised committee resolution is commonly used for a physical transfer. Section 58 principally governs refusal to register and the related remedy; it should not be described as a standalone rule requiring a Board resolution for every transfer.

Q2. Is stamp duty payable in addition to income-tax on the same transfer?

Yes, where each levy applies. Stamp duty concerns the relevant securities transaction or instrument, while income-tax concerns the income or gain arising from the transaction. Compliance with one does not discharge the other.

Q3. Does Form FC-TRS apply to a gift of shares to a non-resident relative?

A resident-to-non-resident gift must be checked under the applicable FEMA gift provisions, including any prior approval requirement, eligibility conditions and reporting rules. Do not assume that the reporting and approval position is identical to a sale merely because both involve a change in shareholding.

Author: CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES, Company Secretary in Practice from Delhi, can be contacted at [email protected].