To gift shares held in demat form, you give your depository participant (DP) an off-market transfer instruction that moves the shares straight into the recipient's demat account. On that instruction you choose the reason code "Gift" (or the family-member code) and mark the transfer as being without consideration. No stock exchange, broker order or STT is involved. Under the Income-tax Act, 2025, a gift of shares by an individual is not a "transfer" for capital gains, so the person giving the shares pays nothing. Whether the person receiving them pays tax depends on who they are, and that is the part people get wrong.
The steps below apply to listed shares, ETF units and other securities sitting in a CDSL or NSDL account. The tax position is for gifts made on or after 1 April 2026, which fall in tax year 2026-27 under the new Act.
The off-market transfer, step by step
An off-market transfer is a direct debit from one demat account and credit to another, recorded only by the depositories. Here is the sequence that works with most DPs.
- Collect the recipient's account details. You need their full demat account number (the 16-digit BO ID for CDSL, or the DP ID and client ID for NSDL) and the name exactly as it appears on that account. If the recipient is a minor, the shares go to the minor's own demat account operated by the guardian.
- Pick the channel. You can fill a physical delivery instruction slip (DIS) from your DIS booklet and sign it, with every joint holder signing. You can also use your DP's online off-market facility, or CDSL's Easiest platform if your account is with a CDSL participant.
- Enter the ISIN and quantity for each security. Check the ISIN against your holding statement, since one company can have several ISINs (for example, partly paid shares).
- Choose the reason code. For a gift, use "Gift". Where the recipient is a family member covered by the DP's "Transfer between Specified Family Members" code, that code is also open to you, and the DP will record the relationship.
- Mark the consideration field "without consideration". A gift has no price, and the depository systems carry a separate flag for it.
- Submit and track. Once executed, the shares leave your holding statement and appear in the recipient's account. Keep the acknowledgment and both transaction statements.
Using CDSL Easiest instead of a paper slip
CDSL's Easiest FAQ for beneficial owners describes two modes. Under the trusted-account mode you pre-notify up to four CDSL demat accounts, and transfers to them are approved with a separate PIN. Inter-depository transfers (CDSL to NSDL) are not available in this mode. For any other account, including an NSDL account, you need the "Account of Choice" mode, where each instruction is signed with a digital signature certificate. Joint holders cannot finish registration online alone; the signed form has to reach the DP within 90 days or the registration lapses.
Which reason code fits your transfer
The reason code is not a formality. It tells the DP which checks to run, decides whether consideration and payment details are mandatory, and is what the depository will look at if a transfer is questioned later. CDSL's circular on validation of off-market reason codes (CDSL/OPS/DP/SYSTM/2021/569, 15 December 2021) lists the codes now in use. These are the ones families use most often:
| Situation | Reason code (CDSL) | What the DP will ask for |
|---|---|---|
| Gift to anyone, family or not | Gift (code 1) | No price or payment details |
| Gift to a family member covered by the code | Transfer between Specified Family Members (code 31) | The relationship between transferor and transferee, which the DP records |
| Moving shares between your own accounts | Transfer to Own Account (code 5) | The target account's client master list if it is with the other depository |
| Parent's account to a minor child's account, or back | Transfer between Minor Account and Guardian Account (code 30) | Guardian and minor account details |
| Selling shares to someone outside the exchange | Off-Market Sale (code 2) | Consideration amount and payment details, which are mandatory |
The sale code is where paperwork bites. Under CDSL communique CDSL/OPS/DP/SYSTM/2018/465, a sale instruction must carry the consideration and seven payment details, including the payment mode, the bank account and the cheque or reference number, in an annexure signed by the client. Using "Gift" for what is really a sale, to skip that annexure, leaves you with a record that contradicts the bank entry. That mismatch is exactly what a tax officer or a depository inspection will spot.
Stamp duty on a gift of demat shares
Since 1 July 2020 the depositories collect stamp duty on off-market transfers. NSDL's circular NSDL/POLICY/2020/0085 dated 26 June 2020 says the duty is collected on the "consideration amount" entered in its system. Users may tick a "Without Consideration" flag, but that option is not available for the "Sale" and "Commercial Paper Issuance" codes. In other words, the duty follows the consideration you declare, so declaring a gift honestly matters for this too. Ask your DP for its tariff page before you submit, because DPs also charge their own per-instruction fee.
Who pays income tax when shares are gifted
Three provisions of the Income-tax Act, 2025 decide the answer, and the official scope note on the new Act confirms that the 1961 Act still governs tax years beginning before 1 April 2026.
- The giver. Section 70(1)(b) says a transfer of a capital asset by an individual or HUF under a gift, will or irrevocable trust is not treated as a transfer. No capital gain arises, however much the shares have grown in value.
- The receiver. Section 92(2)(m) taxes property other than immovable property (shares included) received without consideration where the aggregate fair market value exceeds ₹50,000. Section 92(3) switches this off when the gift comes from a relative, is received on the occasion of the recipient's marriage, or comes under a will or by inheritance. "Relative" is defined in section 92(5)(g). It covers the spouse, brothers and sisters (and those of the spouse or parents), lineal ascendants and descendants of the individual or spouse, and the spouses of all of these.
- Later income from the shares. Section 99 clubs the income from assets transferred without adequate consideration to a spouse (clause (1)(a)(ii)) or to a son's wife (clause (1)(b)) with the giver's income. A minor child's income is clubbed under clause (1)(c). If the parents are still married, section 99(5)(b) puts it with the parent whose income is higher.
Put together, the outcomes look like this for a gift made in tax year 2026-27:
| Recipient | Tax on the giver | Tax on the recipient at receipt | Who is taxed on dividends and later gains |
|---|---|---|---|
| Adult son, daughter, sibling or parent | None, section 70(1)(b) | None, gift from a relative under section 92(3) | The recipient |
| Spouse | None | None | Clubbed with the giver under section 99(1)(a)(ii) |
| Son's wife | None | None, she is a relative of the giver as the spouse of a lineal descendant | Clubbed with the giver under section 99(1)(b) |
| Minor child | None | None | Clubbed with the parent having the higher income, section 99(5)(b) |
| Friend, nephew, niece or cousin | None | Taxable if the aggregate fair market value is over ₹50,000 | The recipient |
Nephews, nieces and cousins surprise people. The section 92(5)(g) list covers brothers and sisters, ascendants and descendants, and their spouses. It does not cover a sibling's children or an uncle's children. A ₹3 lakh gift of shares to a niece is therefore taxable in her hands as income from other sources. The ₹50,000 test is on the aggregate value received in the year, and once it is crossed the whole value is taxable, not just the excess.
Cost and holding period after the gift
The recipient does not start with a fresh cost on the date of the gift. Under serial number 1 of the table in section 73(1), where an asset is received under a gift or will, its cost is the price the previous owner paid, plus any improvement cost. For shares bought by the giver, that is simply the giver's purchase price.
The holding period carries over in the same way. The definition of short-term capital asset in section 2(101) of the Income-tax Act, 2025 treats listed shares as long-term once held for more than twelve months. Clause (c) adds the period for which the previous owner held the asset, for assets covered by serial number 1 of the section 73(1) table. The old law worked the same way under sections 47(iii) and 49(1) of the 1961 Act, as the department's capital gains explainer shows. That matters if you are now selling shares gifted to you before April 2026.
There is one exception to watch. Where the gift was taxed in the recipient's hands under section 92(2)(m), serial number 17 of the same section 73 table takes the value already taxed as the cost. The recipient is not taxed twice on the same rupees.
Illustration: mother to son, then a sale
Assume these figures for the purpose of illustration. Asha bought 500 shares of a listed company on 10 June 2023 at ₹420 each. On 15 May 2026 she gifts all 500 to her adult son Rohan through an off-market transfer, code "Gift", without consideration. The shares are quoted at ₹1,050 that day, so the gift is worth ₹5,25,000. Rohan sells them on the exchange on 20 January 2027 at ₹1,200 each.
- Asha pays no capital gains tax on the gift (section 70(1)(b)).
- Rohan pays no tax on receiving ₹5,25,000 of shares, because a mother is a relative (section 92(3)).
- Rohan's cost is Asha's cost: 500 × ₹420 = ₹2,10,000.
- His sale value is 500 × ₹1,200 = ₹6,00,000, so the capital gain is ₹3,90,000.
- Counting from 10 June 2023, the shares were held for 1,320 days, well over twelve months, so the gain is long-term. Had Rohan counted only from 15 May 2026, he would have reached just 250 days and wrongly reported a short-term gain.
Now change one fact. Suppose Asha gives the same shares to a friend's daughter instead. The friend's daughter is taxed on ₹5,25,000 as income from other sources for tax year 2026-27. Her cost for a later sale becomes that ₹5,25,000, so a sale at ₹6,00,000 leaves a gain of only ₹75,000. The total tax is very different, and it falls on a person who may not have expected any.
When the transfer is really a sale
If money changes hands, the transfer is a sale, whatever the family relationship. Use the off-market sale code with the consideration and payment details. The seller then computes capital gains in the normal way. One more point: the concessional 20% rate for short-term gains in section 196 applies only where the transfer is chargeable to securities transaction tax. An off-market deal does not pass through the exchange, so do not assume the concessional rate applies to it; check the STT position for both the purchase and the sale before filing.
Papers to keep after the transfer
- The signed DIS or the online instruction acknowledgment showing the reason code and the "without consideration" flag.
- Transaction statements of both demat accounts for the month of the transfer.
- The giver's original contract notes or allotment advice, which the recipient needs to prove cost and the start of the holding period years later.
- A short gift letter or deed signed by the giver, stating the relationship, the ISINs and quantities, and that nothing was paid. No depository rule requires it for demat shares, but it is the simplest proof that the transfer was a gift if the recipient is ever asked to explain the credit.
- For gifts to non-relatives, the closing price on the date of receipt, since that drives both the tax under section 92(2)(m) and the later cost.
If the shares are of a company where the giver or recipient is a designated person, check the company's insider trading code before instructing the DP. A gift still changes the holding, so see whether the code treats it as a trade needing pre-clearance or disclosure.
