What is the tax treatment of shares received as a gift by an HUF from a non-member?

An HUF may receive assets by way of gift from different persons, but the tax treatment can vary depending on who makes the gift and how the HUF subsequently deals with the gifted asset. A practical question arises where the Karta’s father gifts listed shares directly to the HUF and the HUF sells those shares shortly after receiving them.

In such a situation, the HUF needs to consider two separate tax implications. First, the taxability of the shares received as a gift, and second, the capital gains arising on their subsequent sale.

Today's Q&A explains such details in response to a query by a reader.

Answer: After abolition of donor based Gift Tax Act, 1958 in 1998 the same was rampantly abused which forced the government to introduce the donee based income tax on the value of gifts received.

Presently a recipient is required to pay tax on full value of the all the gifts received by him from all the sources during a financial year exceeds fifty thousand rupees under section 56(2)(x) of the Income Tax Act, 1961 which is applicable for and upto financial year 2025-2026. The corresponding section is Section 92(2)(m) of the Income Tax Act, 2025 which has become applicable from 1st April 2026.

The provision of taxation of gifts in the hands of recipient is subject to certain exceptions like gifts received from specified relatives and inheritance received either under a will or under personal law of the deceased.

So in case the market value of listed shares gifted on the date of gifts along with other gifts received by the HUF during the year exceeds the threshold of fifty thousand rupees the aggregate value of all such gifts shall be taxed under the head Income from other sources.

When assets acquired under a gift which has already been taxed under section 56(2)(x) is subsequently sold/transferred, the fair market value of such assets which has already been taxed earlier is treated as cost of the taxpayer under section 49(4) of the Income Tax Act, 1961 for computation of capital gains. The corresponding provision is contained in item no. 17 of table of section 73(1) of Income Tax Act, 2025.

As per Section 2(42A) of the Income Tax Act, 1961 the holding period of the previous owner in the case of gifts covered under section 49(4) is not taken into account. So the difference between the market price of the shares and the net sale price actually realised subsequently shall be treated as short term capital gains/loss in your hands and taxed under the head “Capital Gains”.