By ipomarket.in Editorial Team · Last reviewed: 2026-08-13
Disclaimer: This article is for informational purposes only and does not constitute investment advice. IPO investments are subject to market risks. Please read the offer document carefully and consult a SEBI-registered investment advisor before investing.
Many investors who get an IPO allotment think of gifting some of those shares to a spouse, children or parents — either to spread the future gains across lower tax slabs, or simply as a family gift. The mechanics sound simple. The tax treatment is not. Depending on who you gift the shares to, the future capital gains may still be taxed in your own hands, and the cost basis you use when the shares are eventually sold usually goes back to what you originally paid.
This guide walks through how gifting listed shares (including IPO-allotted shares) is treated under Indian tax law, using the provisions carried into the Income Tax Act, 2025, which came into force on 1 April 2026 and replaced the 1961 Act. If you are still getting comfortable with the basics of IPO taxation, our explainer on the ₹1.25 lakh LTCG exemption on IPO gains is a useful starting point.
Is there any tax on the person gifting the shares?
No. Gifting shares is not treated as a "transfer" for capital gains purposes — it is specifically excluded under the relevant provisions of the Act (Section 47 of the erstwhile 1961 Act, carried into the 2025 Act). Because there is no sale consideration, the giver does not realise a capital gain and does not pay tax at the moment of gifting.
That is the easy part. The complications sit with the recipient and, in some cases, come right back to the giver through the clubbing rules.
Tax in the recipient's hands
What the recipient pays on receiving the gift depends entirely on the relationship.
Gifts to specified relatives
Gifts received from a specified relative are exempt in the recipient's hands, regardless of value. Based on the research, specified relatives include spouse, children, parents and siblings (lineal ascendants and descendants). So a father gifting IPO shares worth ₹10 lakh to his son creates no taxable income for the son at the point of gifting.
Gifts to non-relatives
Here the ₹50,000 rule bites. Under Section 56(2)(x) (now carried into the 2025 Act), if the fair market value of shares gifted by a non-relative exceeds ₹50,000, the entire value is taxable in the recipient's hands as income from other sources, at their slab rate.
Crucially, cousins, aunts, uncles, nephews and nieces are not treated as specified relatives. According to the research, a gift of shares worth ₹5 lakh to a cousin would be fully taxable — the whole ₹5 lakh — in the cousin's hands at their applicable slab rate. This surprises a lot of families who assume anyone related by blood counts.
What happens when the shares are eventually sold
This is where IPO investors need to pay attention, because the real gain often shows up at sale, not at gifting.
When the recipient later sells shares received as a gift from a relative, the cost of acquisition is generally deemed to be the original purchase cost incurred by the donor, not the market value on the day of the gift. The holding period of the donor is also ordinarily counted when working out whether the gain is short-term or long-term.
So if you were allotted IPO shares at ₹100 and gifted them to your son when the market price was ₹400, and he later sells at ₹500, his taxable gain is computed from ₹100 — not ₹400. The appreciation does not get "reset" by the gift. This is a common misconception. For non-relatives who were taxed at receipt, the position differs — the market value taxed at receipt effectively becomes their cost base.
If you want to understand how the underlying capital gains are computed and reported, see our guide on how to report IPO profits and losses in your ITR.
The clubbing trap: why gifting to a spouse rarely saves tax
The biggest reason gifting fails as a tax-planning tool is the clubbing of income provisions.
Gifts to spouse — Section 64(1)(iv), now Section 99
Under Section 64(1)(iv) of the old Act (Section 99 under the 2025 Act, with identical substance), any income arising from an asset transferred to a spouse without adequate consideration is clubbed back into the transferor's income. Per the research, capital gains on shares count as such income.
In plain terms: if you gift IPO shares to your spouse and those shares are later sold at a profit, the capital gain is taxed in your hands, not your spouse's. The gift does not shift the tax liability. This defeats the purpose for most people trying to use a spouse's lower slab.
Gifts to minor children
Similar clubbing applies when assets are gifted to a minor child. The income (including gains) is clubbed with the parent's income. The research notes a small relief — a deduction of ₹1,500 per child against the clubbed income.
Gifts to adult children, parents and siblings
This is the clean category. According to the research, clubbing does not apply to gifts made to adult children, parents or siblings. The gift is tax-free to them (specified relatives), and any future capital gains are taxed in their hands at their slab rate. For families where an adult child or a parent sits in a lower tax bracket, this is the route that can genuinely shift the tax burden — subject to the cost-basis rule above.
One useful nuance on clubbing
Clubbing applies only to income directly arising from the gifted asset, not to the next layer. The research gives the classic example: if a husband gifts money to his wife who puts it in a fixed deposit, the interest is clubbed with the husband. But if that interest is reinvested and earns further income, the "second-generation income" is taxable in the wife's own hands. The same logic applies to reinvested proceeds from gifted shares.
Summary table
| Recipient | Gift taxable to recipient? | Capital gains on sale | Clubbing applies? | Cost basis |
|---|---|---|---|---|
| Spouse | Exempt | Recipient liable | Yes — S64(1)(iv)/S99 | Donor's original cost |
| Adult child / parent / sibling | Exempt | Recipient liable | No | Donor's original cost |
| Minor child | Exempt | Recipient liable | Yes (₹1,500 relief) | Donor's original cost |
| Non-relative (>₹50,000) | Taxable | Recipient liable | No | Market value at receipt |
How the transfer actually happens
Listed shares are gifted through an off-market demat transfer between the giver's and recipient's demat accounts, supported by a gift deed and records establishing that the transfer was gratuitous (no money changed hands).
On stamp duty, the research indicates the depository (NSDL/CDSL) collects stamp duty at 0.015% of the market value of the shares, borne by the recipient, collected electronically when the demat transfer instruction is processed. On shares worth ₹10 lakh, that works out to ₹150.
Keep the documentation tight: a gift deed, the demat transaction records, and — most importantly for later — the donor's original cost and purchase date. Without proof of the original cost, computing capital gains on eventual sale becomes messy. Our note on maintaining IPO trade records for tax filing is relevant here.
A caveat specific to IPO shares: lock-in and transferability
One point the research could not confirm from a SEBI source: IPO allocations can carry lock-in or restricted-transfer periods depending on the category (for example, anchor investor and promoter lock-ins). Whether freshly allotted IPO shares can be gifted immediately depends on the terms in that specific IPO's prospectus and applicable exchange rules. Treat this as "verify the lock-in in the offer document before attempting any transfer." We could not locate a specific SEBI circular governing gifting of IPO-allotted shares in this research, so do not assume all allotted shares are freely transferable from day one.
FAQ
Do I pay tax when I gift my IPO shares to my son?
No. Gifting is not treated as a transfer for capital gains, so the giver pays no tax at the point of gifting. Your son, as a specified relative, also pays no tax on receiving the gift. Tax only arises when he eventually sells, and it is computed on your original purchase cost.
If I gift shares to my wife, whose income is the capital gain?
Based on the research, the capital gain is clubbed back and taxed in your hands under Section 64(1)(iv) (Section 99 under the 2025 Act). Gifting to a spouse does not move the tax liability to the spouse's lower slab.
My cousin is a relative, so gifting shares to him is tax-free, right?
No. Cousins, aunts, uncles, nephews and nieces are not "specified relatives" under Section 56(2)(x). If the shares gifted exceed ₹50,000 in value, the full amount is taxable as income in your cousin's hands at his slab rate.
What cost do I use when the gifted shares are finally sold?
For gifts from relatives, the cost of acquisition carries forward from the donor — the original price the donor paid — and the donor's holding period is included when deciding short-term versus long-term. The market value on the gift date is not used.
Is there stamp duty on gifting shares?
According to the research, the depository collects stamp duty at 0.015% of the shares' market value, borne by the recipient, at the time of processing the demat transfer. On ₹10 lakh of shares, that is roughly ₹150. Verify the current rate with your depository participant.
Last reviewed: 2026-08-13. Tax provisions cited reflect the position carried into the Income Tax Act, 2025. Verify current rates and IPO-specific lock-in terms before acting.