Gifting stock can be a fun way to create an interest in trading as well as an excellent addition to one's portfolio. From Warren Buffett to Rakesh Jhunjhunwala, a number of people have created massive wealth from stock market trading. It could get a young person intrigued by the markets or an existing investor add another star to its portfolio.
Let's see how you can do this.
There are two methods of gifting a stock - offline and online. While the offline method has been there for 2 years, online brokerage firm Zerodha was the first to come out with an easier online method last year. Not only stocks you can gift mutual fund units, gold bonds, and ETFs as well through this method.
"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," Nithin Kamath, Founder & CEO, Zerodha said while introducing the new method.
Understanding the two:
Since the gifting of shares involves a transfer from the donor to the donee with no monetary gains in returns, it happens through an off-market transaction. That means it is between depository and depository participants and does not involve the stock exchange. This process has been there since 1 April 2019.
Step 1: The donor fills out a delivery instruction slip (DIS) and gives it to his/her Depository Participant (DP). DP is basically the firm that opened your Demat account.
Step 2: For this, you will need the DP ID, DP name, Client ID, of the donee or receiver. Also the name, ISIN, and the number of the shares that are to be gifted. You also have to give an execution date on which the shares will be transferred.
Step 3: After this, the receiver will have to fill a recipient form and submit it to his/her DP.
Step 4: After this receipt instruction is submitted, the details in both the delivery and receipt instructions are tallied.
Step 5: If they match, the shares will be credited to the receiver's DP account on the execution date.
One must note that once the transfer happens, it cannot be revoked. Also, since shares are considered as movable property, it's not necessary to execute a gift deed on stamp paper.
Tax implications: If the shares are transferred to a relative which is spouse, children, siblings of self/spouse, lineal ascendants and descendants of self/spouse, then the shares will not be taxable despite the amount. However, if it is other than these relatives, the shares will be taxed at the hands of the receiver if they are worth more than ₹50,000.
Zerodha was the first and till now the only brokerage that has allowed gifting stocks, bonds, MFs to loved ones after CDSL’s e-DIS (Electronic delivery instruction slip) recently allowed this.
Here are the steps to follow
Step 1: Log in to your Zerodha account and enter the name, mobile number and email id of the person you want to gift.
Step 2: Select the stocks, ETFs, bonds you wish to gift and the amount.
Step 3: The recipient will receive an SMS and email with the details of the gift.
Step 4: The recipient accepts the gift. He/She will need to have an account with the brokerage in order to do so. If the gift is not accepted within 7 days, the request is canceled.
Step 5: Once the recipient accepts the gift, an email and SMS notification will come to the doner from the brokerage to verify the recipient's details and approve the transfer of stocks from your Demat.
Step 6: Once approved, an off-market gift transaction will be set up at CDSL. You will get an OTP to verify from CDSL.
Step 7: Once verified the donee will receive the shares in his/her Demat account.
Now that we have learned both the online and offline ways to gift shares, let's start the process.