I am working in a private company and fall under the 30 per cent income tax slab. I own shares of listed companies worth approximately ₹2 crore. I am receiving dividends from these companies, approximately ₹1.30 lakhper year. Currently, I show dividend income as other income in my returns. I want to transfer these shares to my father who is a senior citizen above 75 and has no income of his own. Please explain the tax implication for transferring shares to my father or mother as gift. Also, what would be the tax implication on the dividends received once the shares are transferred into my father’s demat account.
Your father/mother is not required to pay tax when you gift shares to them. This exemption is specifically called out under section 56(2)(x) of the Income Tax Act. Best would be to document the gift transaction.
Once the shares are transferred to your parents, any dividend income received from those shares would be taxable in their hands. Tax would need to be determined based on the applicable slab rates depending on their total income for that tax year.
Dividend income in excess of ₹5,000 is subject to tax withholding at the rate of 20% per cent. Since you have mentioned that the expected dividend is only around ₹1.3 lakh per annum and your father has no other income, perhaps he could submit form 15H to the company requiring them not to withhold taxes on the dividend payout.
The writer is Partner, Deloitte India