Share Transfer in a Company

Share Transfer involves the process of transferring existing shares. This is done to change the share structure of your company. The transfer can be done through sale or by making gifts.

The main feature among companies is that shares and debentures are transferable, i.e. they are considered movable property just like a car you own. Hence this means that if you own a property, you have the authority to transfer it either through a way of gift or sale.

Shares are transferred to introduce new shareholders in the company.

The transfer of securities can be made by any contract or arrangement between 2 or more people. In a company, any securities(debentures) can be transferred through the process.

What does the transfer of shares mean?

Share transfer is a voluntary handing over of the rights and duties to members from the shareholder who longer wishes to be a member of the company. The shares are transferable only when there are no reasonable restrictions mentioned in the articles of the company.

Stamp Duty on Transfer of Shares

Investment in the stock market is on the all-time high as it provides a high rate of interest/return but with a high rate of return comes the problem of high risks(high gain and loss). In either case, the government levies stamp duty on the transfer of shares. Stamp duty is payable on instruments that create any right or liability either through transfer or gift.

Stamp duty is considered the tax that is levied on the shares. With the digitisation of the governmental process, the stamp duty need not be pasted to the share transfer deed.

Amount of Stamp duty to be paid on Transfer of Shares

Stamp Duty is levied at a rate of 0.25% of the amount of the share consideration. The consideration amount as per the above rate of interest can be calculated as 25 Paisa on every transfer of 100 rupees.

Note: There is no stamp duty on transfer of securities(Shares and Debentures) in the depository scheme.

Take for an example If you Transfer shares of Rs 2 lakh for total amount against the shares, then the tax that will be levied on the share transfer will be of Rs 500, i.e. Rs200000*0.25%.

Taxes on Transfer of Shares

You might think that income from the shares is exempted from tax reduction, but that is not the case with respect to shares or any of the dividends. Taxation on shares is levied on many aspects of shares in India such as tax rates on capital gains and the sale of shares and also the computation of capital gains.

Capital Gain Tax

If the shareholder transfers the shares by selling or gifting will have to pay capital Gain tax for it. The tax is on the difference of the amount on the purchase of the share and the amount for which it is being sold.

Generally, the tax rate applicable to Capital gain is 20% of the indexed capital gain. The capital gain that is calculated on unindexed capital gain is 10% lower than indexed capital gain.

Factors that affect capital gains are:

Holding period of the Shares

Mostly the profit that arises from capital assets such as shares is considered as long term gain if it is held for more than 36 months, but profit from shares being held in any company for a period more than 12 months will be considered long term.

Transfer of Listed Shares

As per the present income tax provision if the equity shares are sold outside the stock exchange platform or if the shares are offered under the buyback scheme is levied the capital gain tax.

Pro Tip: Capital gain arising out of any sale or transfer of share listed on the stock exchange platform through stockbroker are exempted from income tax.

Tax Exemptions on Transfer of Shares

The shares that are sold on the platform of Stock exchange in India for which Security tax has been paid can claim Income tax exemption. You can verify whether you have paid security Transaction tax by checking the bill issued by your broker.

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