Gift of Shares: Is Stamp Duty Payable After July 2020?

Brief: The article examines whether stamp duty is payable when shares are gifted without consideration following the securities stamp duty amendments effective from 1 July 2020. It explains the author’s view that a genuine gift attracts no duty on the share transfer, whether the shares are held physically or in demat form. For physical shares, the donor and donee use Form SH-4 and lodge it with the company; for demat shares, the donor gives an off-market delivery instruction identifying the transaction as a gift. The article distinguishes the transfer instrument from an optional, separate gift deed, whose stamp duty treatment should be checked under the applicable State law. It also covers transfers involving consideration, the dematerialisation requirement under Rule 9B, and brief income-tax and FEMA implications.

Stamp Duty on Gift of Shares in India – Is It Payable After the July 2020 Amendment?

Short Summary

Gifting shares to a spouse, child or other family member is a common step in succession and family planning. The usual question is whether stamp duty has to be paid on such a transfer, and whether the answer changes from State to State. The Finance Act, 2019 amended the Indian Stamp Act, 1899 with effect from 1 July 2020 and brought a uniform, Central system for stamp duty on transfer of securities. Under this system, duty is charged on the consideration for the transfer. Since a genuine gift has no consideration, the transfer of shares by way of gift does not attract stamp duty, whether the shares are held in physical form or in a demat account.

Short Answer

After 1 July 2020, a genuine gift of shares attracts no stamp duty on the transfer anywhere in India. Stamp duty on transfer of securities is charged on market value, which for a transfer is the consideration, and in a gift the consideration is nil. This applies to both physical shares (through Form SH-4) and demat shares (through an off-market transfer marked as a gift). Form SH-4 is still required for physical shares. A separate gift deed, if executed, should be checked under the State Stamp Act.

Applicable Legal Provisions

• Constitution of India, Seventh Schedule, List I, Entry 91: Gives Parliament the power to fix rates of stamp duty on transfer of shares, so the position is the same across India.
• Indian Stamp Act, 1899 – Sections 2(16B) and 21: Duty on an instrument transferring securities is charged on the market value, which for a transfer is linked to the consideration.
• Indian Stamp Act, 1899 – Section 9A: Makes depositories the collecting agents for duty on off-market demat transfers.
• Schedule I, Article 62 (as amended): Prescribes 0.015% on transfer of shares, which applies to the consideration.
• Indian Stamp (Collection of Stamp-Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019: Lay down the collection mechanism for demat transfers.
• FAQs issued by the Department of Economic Affairs, Ministry of Finance: Clarify that off-market transfers without consideration, such as gifts, do not attract stamp duty.
• Companies Act, 2013, Section 56 read with Rule 11 of the Companies (Share Capital and Debentures) Rules, 2014: A physical transfer, including a gift, can be registered only on delivery of a proper instrument of transfer in Form SH-4.
• Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014: In private companies other than small companies, shares must be dematerialised before they can be transferred.

Relevant Extracts (Simplified)

• Section 21: Any instrument transferring securities shall be chargeable to duty on the market value of the securities.
• DEA FAQ: No stamp duty will be charged on an off-market transfer of securities without consideration, such as a gift.

Legal Position

1. Gift of shares held in physical form

The donor and donee execute Form SH-4, showing the consideration as nil and the nature of the transfer as a gift. Since the duty is 0.015% of the consideration, and the consideration is nil, no share transfer stamps are required. The SH-4 is lodged with the company along with the share certificate, and the Board registers the transfer. Before 1 July 2020, many States charged duty on physical gifts at the market value; that position no longer applies to the transfer instrument.

2. Gift of shares held in demat form

The donor gives an off-market Delivery Instruction Slip to his depository participant, selecting “gift” as the reason and showing nil consideration. The depository, which otherwise collects 0.015% of the consideration, collects no duty on such a transfer.

3. Separate gift deed

A gift deed is not legally required to gift shares; SH-4 or the Delivery Instruction Slip is sufficient to effect the transfer. Many families still sign a gift deed as evidence of the gift. That deed is a separate instrument and may attract duty under the Stamp Act of the State where it is executed. The conservative view is to check the State Stamp Act before executing a gift deed, or to rely only on SH-4 or the DIS with a simple declaration of gift.

4. When the transfer is not really a gift

If anything of value passes in return, such as money, a set-off of a loan, or shares or property given back, the transfer is for consideration and duty at 0.015% applies on that consideration. Labelling such a transfer as a gift does not change its nature.

Practical Interpretation

• First check whether the company is covered by Rule 9B. If it is a private company other than a small company, or a holding or subsidiary company, the donor must dematerialise the shares before gifting them.
• For physical shares, execute Form SH-4 with nil consideration, mention “by way of gift”, and lodge it with the company within 60 days of execution along with the share certificate. Check the Articles for any pre-emption or transfer restriction and pass a Board resolution approving the transfer.
• For demat shares, submit an off-market DIS with reason code “gift” and nil consideration. Keep a donor’s declaration and proof of relationship on record.
• If a gift deed is executed, confirm the duty payable on it under the local State Stamp Act before signing.
• Income-tax (briefly): A gift of shares is not treated as a transfer for capital gains in the donor’s hands. In the donee’s hands, a gift from a “relative” is not taxable, while a gift from a non-relative above Rs. 50,000 in aggregate is taxable. Verify this under the income-tax law in force for the year of the gift.
• FEMA (briefly): A gift of shares by a resident to a non-resident is subject to conditions under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, and should be checked separately.

Example

Mrs. S holds 20,000 shares of PQR Private Limited, a small company, in physical form. She gifts 10,000 shares to her daughter. She executes Form SH-4 showing nil consideration and “by way of gift”, and lodges it with the company along with the share certificate. No stamp duty is payable on the SH-4. The daughter pays no income-tax on the gift as it is from a relative. Had PQR not been a small company, Mrs. S would first have dematerialised the shares and then gifted them through an off-market transfer, again with no stamp duty.

Conclusion

After the July 2020 amendment, a genuine gift of shares, physical or demat, does not attract stamp duty on the transfer, and the position is the same in every State. Form SH-4 remains mandatory for physical shares, and Rule 9B must be checked before any physical transfer. The conservative course is to avoid a separate gift deed unless needed, or to check its duty under the State Stamp Act before execution.

FAQs

Q1. Is stamp duty payable on a gift of shares in Delhi?

No. The rule is Central, and a genuine gift attracts nil duty on the transfer in Delhi, as in every other State.

Q2. Is Form SH-4 required for gifting physical shares?

Yes. SH-4 is the prescribed instrument of transfer under Rule 11. Only the stamp duty on it is nil.

Q3. Is stamp duty payable on transmission of shares to legal heirs?

No. Transmission happens by operation of law and is neither a gift nor a transfer for consideration.

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