Can You Gift US Stocks to Parents in India?

Yes, you can legally gift stocks to your parents in India, including shares of foreign companies. However, this process involves navigating regulatory, tax, and compliance requirements that you should thoroughly understand.

Key Steps and Requirements for Gifting Stocks

To successfully gift US stocks, you need to follow these steps:

1. Ensure Proper Brokerage Accounts

• Your parents in India need a brokerage account capable of holding and trading foreign stocks.
• This could mean opening an international demat and trading account with brokers that support cross-border investments.

2. Draft a Gift Deed

• Create a formal gift deed specifying the details of the stock transfer, including the value and number of shares gifted.
• This deed serves as evidence for tax and compliance purposes.

3. Check Regulatory Compliance Under FEMA

• Gifting foreign stocks falls under "capital account transactions" under India’s Foreign Exchange Management Act (FEMA). FEMA regulations generally disallow capital account transactions unless explicitly permitted.
• The FEMA (Capital Account Transactions) Regulations, Schedule 2, do not explicitly list gifting foreign stocks as a permitted transaction.
• Consult a FEMA expert to confirm the legal feasibility of this transaction before proceeding.

Tax Implications for You in the US

1. Capital Gains Tax

• Gifting stocks does not trigger immediate capital gains tax liability for you.
• However, it may have implications for your gift tax obligations.

2. Gift Tax Reporting

• If the value of the gifted stocks exceeds the annual exemption limit (currently $19,000), you must file Form 709 with the IRS.
• If you are a non-US citizen or resident under US gift tax law, gifts exceeding $60,000 may attract gift tax ranging from 18% to 40%.

Tax Implications for Parents in India

1. No Immediate Tax on Receiving the Gift

• Gifts from relatives, including children, are tax-exempt in India.

2. Disclosure Obligations

• Your parents must disclose the gifted stocks in Schedule FA (Foreign Assets) when filing their income tax returns.
• Any income generated from these stocks, such as dividends, must be reported and taxed at their applicable slab rates.

3. Capital Gains Tax on Sale of Stocks

• When your parents sell the gifted stocks, they will be liable for capital gains tax based on the holding period and nature of gains:
  • Long-term capital gains (LTCG): Taxed at 12.5% for stocks held for more than 12 months.
  • Short-term capital gains (STCG): Taxed at 20% for stocks held for less than 12 months.
• The cost and acquisition date of the stocks remain the same as yours, as per Indian tax laws.

Compliance Checklist

• Draft a Gift Deed: Ensure that the gift deed clearly outlines the terms of the transfer.
• Coordinate with Brokers: Verify that both your and your parents' brokerage accounts are compatible for cross-border stock transfers.
• Disclosure in Tax Returns: Ensure that your parents report the stocks in Schedule FA and income from them in their tax returns.
• Proper Record-Keeping: Maintain documentation to support the transaction in case of future audits.

Important FEMA Consideration

Since gifting foreign stocks is a capital account transaction, and such transactions are generally disallowed unless specifically permitted under Schedule 2 of FEMA regulations, consulting a FEMA expert is strongly recommended before proceeding.

Final Thoughts

Gifting US stocks to parents in India can be a thoughtful financial move but requires meticulous planning and adherence to legal and tax regulations. Ensuring compliance with FEMA, US gift tax laws, and Indian income tax reporting is crucial to avoid penalties.

If you’re considering such a transfer, reach out to Dinesh Aarjav & Associates for expert guidance on FEMA, gift tax compliance, and income tax reporting.