Gift Stocks and ETFs with Zerodha: A Guide to Investment Gifting

Honestly, did you ever receive back from someone the same gift that you had gifted them earlier? Ah, the obvious reason could be it wasn’t of any use to them. So, time to introspect… Why not gift something useful in the first place, something that generates wealth, something that compounds for your beloved?
So, boom! Now, Zerodha enables you to gift investments in digital mode. Yes, you heard it right. Well, read on to get down to the nitty-gritty of the offering.

About the Zerodha's feature

Last Diwali, Zerodha came up with a unique feature whereby you can digitally gift stocks, ETFs and gold bonds to your family, friends and relatives. If you have good investments in your Demat account, you can choose to gift them to your loved ones. This serves the dual purpose of gifting something truly valuable as well as spreading financial awareness among your acquaintances. And what’s more, it’s easier than you think.
Moreover, they’ll soon enable gifting of mutual funds as well as gifting to minors. Kudos to team Zerodha!

History of stock-gifting

Not long ago, when CDSL’s e-DIS was introduced, makers at Zerodha had their ‘aha’ moment! And they had good reasons to celebrate. No, it’s not like you couldn’t gift stocks earlier than that. Rather, the process was bugged. Basically, earlier there was DIS (physical delivery information slip), which meant you had to physically fill a form and send it to the broker’s office to execute the transfer. Thanks to digitalization of sorts, e-DIS (electronic delivery information slip) eliminates the hassle of doing it physically. And thus, it’s at our fingertips.

Procedure to gift a stock on Zerodha

1. Visit your Zerodha portal and open the ‘Gift stocks’ window.

2. Feed the name, mobile number and email address of the person you want to gift the stock. 

3. Select the stocks, ETFs or Gold bonds you wish to gift from your holdings.

And yeah, remember, by holdings, I mean investments that have already been received in your demat account. For example, you can’t gift unsettled holdings that have been bought but not received in the demat as the T+2 days’ time period hasn’t been due yet.

 By the way, you can gift only those stocks that are included in the approved list of securities. But it’s okay as there are over 1100 approved securities and chances are high that almost every popular stock is included.

4. The giftee will receive an email or SMS with a link to accept the gift. Sit back and relax while the recipient accepts the gift.

 It’s good if the recipient already has a Zerodha account. But if they don't have one, they can open one and then accept the gift. Thanks to digitalization, the process of opening a demat account is also quite simpler than it used to be.

Oh, by the way, the gift request is valid for 7 days, within which time the recipient must accept the gift, or else the request will be cancelled.

5. Once the recipient accepts the gift, you will receive an email and SMS notification from Zerodha. It asks you to verify the recipient's details and also approve the transfer from your Demat to the recipient using the CDSL TPIN.

*Just so you know, CDSL TPIN (Transaction PIN) is an alternative to PoA (Power of Attorney). Basically, what a PoA does is it gives your broker the right to debit the holdings from your demat account when you sell them. With a bid to further secure the process, the requirement of a 6-digit T PIN was introduced by CDSL. It’s an additional password that helps the customer to authorize the transaction.

6. After you approve the debit of the stocks using the CDSL TPIN, Zerodha will create an off-market gift transaction at CDSL that you need to verify using an OTP sent to you.

7. Shortly after Zerodha sets up the transaction (5 pm on every trading day), you'll receive an email and SMS from CDSL with a link to verify the transaction through an OTP. You'll have to enter your PAN or 16-digit DP ID and generate the OTP. The OTP verification must be done by 8 PM on the same day.

8. Once the transaction is successfully verified using the CDSL OTP, the stocks are transferred from yours to the recipient's demat account.

The holdings will show up in the receiver's account from the next day of the transfer. Cheers!

 Oh, by the way, No additional charges for gifting. The standard off-market transfer charge of Rs. 25/- or 0.03% per scrip (shares of a single company) whichever is higher is applicable. The amount will be debited from the trading account balance of the sender.

 To calculate the P&L and buy price, the gift trade will be automatically entered at the share's closing price on the day of the transfer. The holding transferred by you will be closed at the previous closing price of the stock, and the average price for the recipient will also be the previous closing price on the day the transfer is executed.

Tax implications on gifting stocks

Gifts, by their very nature, are taxable in the hands of the recipient under the head “Income from other sources” at normal slab rates. However, there are certain rules and exemptions. Talking of shares gifted (without any consideration), if the fair market value (FMV) of those shares is more than Rs.50000, only then, the entire FMV shall be subject to taxation. However, as per section 56 of the Income Tax Act 1961, gifts received from relatives are tax-free (who is a relative is particularly defined in the act, but it covers almost everyone in your family proximity). Moreover, gifts received by inheritance or on marriage and other specified occasions are also exempt from tax. However, when the receiver makes gains by the sale of the gift, he’ll be liable to Capital Gains tax.

Gifts of stocks, etc., obviously follow the same rules. There aren’t any tax implications for the sender of the gifts. On receipt of the gift, the receiver shall be liable to pay tax only if the shares’ FMV is more than Rs.50000, provided the sender isn’t a relative, and it’s not any of the specified occasions.

The bottom line

I know you’ll relate. Whenever you plan to gift something to your beloved, you do so only after proper deliberation. It involves thinking about what the recipient might love, what he/she is expecting to be gifted, and what could remind them of you every time they look at it. Not only that, but it’s normal human tendency to handle gifts with much more care and caution than one’s own belongings.

Likewise, before gifting shares, you need to (first) make good investments yourself. Carry out the research and analysis, and only then, proceed with the investments. If you’re planning to gift them, you need to be more careful; you don’t wanna make the recipient put in more and more money just to save the investments from going south… instead, you’ll have to ensure that they’re actually worthy assets for them. Let them remember you whenever they see greens in their portfolio.

So... is grandmother's century coming? Parents' anniversary? Friend's birthday? Raksha Bandhan? No more gifting of apparel and stuff; it’s high time to gift investments and be wealthier together.

And as Zerodha notes in one of their blog posts –

"They are quite literally gifts that keep on giving”

What do you say? Write to us in the comments below.