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Transfer of Shares

Mr Rahul is a Business man and a Tax Resident in USA. He also holds 10,000 shares of ‘Intelligent Private Limited’, a closely held Company Incorporated in India.

Mr Rahul is looking to transfer his shares to 3rd party.

Implications

Taxation
  • Transfer of Shares is a taxable transfer under Income Tax Act,1961. Thus Mr.Rahul has to bear Short Term Capital Gain or Long Term Capital Gain.
  • Short Term Capital Gain on unlisted Shares are taxable at Normal Rates after clubbing with other income.
  • Long Term Capital Gain would be taxed at 10% without any Indexation benefits.
  • Rent from property
A. Pricing Guidelines The price per share arrived at should be certified by a SEBI registered Category-I-Merchant Banker / Chartered Accountant
  • 1. The fair valuation of shares done by a SEBI registered Merchant Banker or a Chartered Accountant as per any internationally accepted pricing methodology on arm’s length basis, where the shares of the company are not listed on any recognized stock exchange in India; and
  • 2. The price as applicable to transfer of shares from Resident to Non-resident as per the pricing guidelines laid down by the Reserve Bank from time to time, where the issue of shares is on preferential allotment.
B. Exchange control implications

Transfer of shares between two non-residents would fall under automatic route and should not require any approval as per exchange control regulations. Pricing guidelines do not apply to this transaction.

C. Stamp duty implications

Stamp duty is payable at the rate of 0.25 % of value of consideration received for transfer of shares. No stamp duty is payable on transfer of shares held in dematerialized form.

Mr Rahul is looking to transfer share to his Father who is a Resident Indian

A person resident outside India can transfer any security to a person resident in India by way of gift.

Thus Shares held by Mr.Rahul can be transferred to Father availing the General Permission. Father being a Resident in India, any gift received from ‘Relatives*’ is exempt from tax.

*A Relative can be any of the following-
  • Spouse of the Individual
  • Brother or sister of the individual, spouse or of either parent
  • Lineal ascendants or descendants of individual or of spouse
  • Spouse of person referred in 2 or 3 above.

Implications in USA

The Gift Taxation in US is slightly different. Let’s understand the implications:

Who has to pay Gift Tax?

The donor is generally responsible for paying the gift tax. Under special arrangements the done may agree to pay the tax instead. Please visit with your tax professional if you are considering this type of arrangement.

What are Excluded Gifts?

The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts.

  • Gifts that are not more than the annual exclusion for the calendar year.
  • Tuition or medical expenses you pay for someone (the educational and medical exclusions).
  • Gifts to your spouse.
  • Gifts to a political organization for its use.

In addition to this, gifts to qualifying charities are deductible from the value of the gift(s) made

What are the disclosures in US Returns?

Refer Form 709 and Publication 559, among other listed items the following are required:

  • 1. Copies of Appraisal
  • 2. Copies of relevant documents
  • 3. Documentation of unusual items shown in the return (Partially gifted assets)