What is gifting of shares?

Gifting of shares

These days almost every individual maintains his/her shares in demat account. If any one doesn’t have a demat account but have shares in physical form, it is better for them to open a demat account so that they can be easily converted into dematerialized form. The following procedure happen only in this case.

Gifting of shares

An off market transaction :

This transfer takes place outside of the trading market and doesn’t involve any kind of formalities as required to be followed in case of a market transaction.

Terms to be known :

1) Donor & donee :

In this transfer the person who gifts the shares is called as donor and the other one who receives it is termed as donee.

2) Delivery instruction slip (DIS) :

Shares are maintained in a demat account as we use a bank to look after our money. Demat account is provided by a specific Institutional bodies called as Depository participants. Delivery instruction slip is a form which is used by the demat account holder to instruct his Depository participant to transfer the shares the details of which are given in DIS to another demat account (reciever). We may say that this is similar to the negotiable instruments such as a cheque , bill of exchange , DD etc. because like a cheque DIS is also used to transfer certain portion of your account balance to another but the difference is money is involved in cheque whereas shares are involved in DIS.

Contents of DIS :

  • A)Name of the Donee
  • B)Donee’s Demat Account Details
  • C) Share/Stock to be transferred
  • D) ISIN Number of the Company
  • E) Quantity of the Shares to be transferred

3) Gift deed :

It is a deed which will be executed between the donor and donee on non judicial stamp paper describing the things involved in gift.
This deed stands as a legal evidence of the gift .

Transfer of shares:

(1) First, the donor has to instruct his Depository participant where the shares are maintained ,by issuing DIS which contains the details of shares and the donee’s demat account & Depository participant. DIS acts as a communication from the donor to transfer the shares described by it to the donee.

2) Donee has to send a receipt instruction to his Depository participant to formally accept the shares.

3) It is recommended to execute a gift deed between the donor and donee describing the things involved in gift and the value of the property transferred through that deed. This helps to solve any future legal or tax related disputes.