Gifting US stocks is an act of foresight, a way to pass on financial security to a loved one. But the emotional value of the gift can be easily overshadowed by the complexities of international tax laws and financial regulations. The good news is, in our interconnected world, many platforms are making this process easier, though careful attention to detail is still essential. The rules for this kind of transfer depend heavily on where you (the donor) and the recipient are living.
This article provides a breakdown of how to navigate these transfers, highlighting the role of platforms in the process, for four key scenarios.
Scenario 1: The Donor Is An Indian Resident, And The Recipient Is A Us Resident
This is a common scenario for parents in India who want to gift US stocks to their child living and working in the US.
Taxation: As the giver, you generally have no tax liability in India. Under the Indian Income Tax Act, a gift of movable property to a “relative” is fully tax-exempt. In the US, the recipient also generally doesn’t pay income tax on the gift. However, if the value of the gift from a foreign person exceeds $100,000, the recipient must report it to the IRS by filing Form 3520. This is for informational purposes and doesn’t trigger a tax payment.
Transfer via Platforms: This is the most challenging scenario due to regulations under India’s Foreign Exchange Management Act (FEMA). Most Indian-based platforms that facilitate US stock investing (like Vested or INDmoney) primarily support transfers from your Indian bank account to your own US brokerage account, not to a third party. Gifting foreign securities to a non-resident is a “capital account transaction” that is not explicitly permitted under FEMA, and may require special permission from the Reserve Bank of India (RBI). In this case, even with a platform, a direct, electronic transfer from your Indian-based account to a US-based account for your child is highly unlikely. The most practical (but less efficient) route would be to sell the shares, remit the cash under the Liberalised Remittance Scheme (LRS), and then have the recipient in the US buy the shares again. This would, however, trigger capital gains tax in India.
Scenario 2: The Donor is an Indian Resident, and the Recipient is an Indian Resident
This is a gift from one Indian resident to another, for example, a parent gifting US stocks to their child who is also living in India.
Taxation: The gift is tax-exempt for both parties under the Indian Income Tax Act, provided the recipient is a “relative.”
Platform Transfer Process: Your original statement is correct in spirit, but it’s important to be precise about how this works. Most platforms that allow Indian residents to invest in US stocks (like Vested Finance or INDmoney) do so by partnering with a US-based brokerage firm (such as DriveWealth). This means your US stocks are held in a brokerage account in your name in the US, but you access and manage them through the Indian platform’s interface.
To transfer US stocks to another person, both the donor and the recipient need to have accounts with the same US partner brokerage. For instance, if both you and the recipient use Vested Finance, and Vested uses a US partner like DriveWealth, an internal transfer can be initiated.
This process is an “off-market” transfer and is often facilitated by the platform. You would typically:
Initiate a gift transfer request through your platform’s portal.
Provide the recipient’s US brokerage account details (which they hold via their Indian-based platform).
The platform’s US partner handles the electronic transfer of shares from your account to the recipient’s.
This is usually a seamless, electronic process. The platform may charge a small fee for this service.
Scenario 3: The Donor Is An Indian Person Living In The Us, And The Recipient Is An Indian Resident
This is a typical scenario for NRIs who want to gift assets to their parents or other family members in India.
Taxation: The gift is not taxable for the recipient in India, as it is a gift from a “relative.” For the donor in the US, the rules depend on their US tax status.
US Citizens/Green Card Holders: You are subject to US gift tax. The annual exclusion for 2024 is $18,000 per person. Any gift above this amount must be reported to the IRS on Form 709, but this amount will count against a generous lifetime exemption.
Non-Resident Aliens (NRAs): If you are an NRA, US gift tax rules are generally more lenient. A gift of intangible property like US stocks is not subject to US gift tax, and no IRS form is required.
Transfer via Platforms: A direct, in-kind transfer of US stocks from a US brokerage account to an Indian demat account is generally not possible. Indian demat accounts are designed to hold shares of Indian companies through the Indian depository system (NSDL/CDSL). US stocks, being foreign securities, are held in a US brokerage account.
Therefore, platforms cannot facilitate a direct transfer in this case. The most common and viable way to complete this gift is a two-step process:
Sell the stocks in your US brokerage account: You would sell the US stocks you wish to gift. As an NRI (tax resident of the US), any capital gains would be subject to US capital gains tax.
Remit the cash to India: You can then transfer the cash to the recipient’s bank account in India. As an Indian resident, the recipient would not pay tax on this gift of cash from a relative.
While this process does trigger a tax event on the sale of the stocks, it is the most common and compliant way to complete the gift due to the incompatible nature of the US and Indian depository systems.
Scenario 4: The Donor Is A Person Living In The Us, And The Recipient Is Also A Us Resident
This is the simplest and most common form of stock gifting.
Taxation: The recipient is not taxed on the gift. The donor is subject to the US gift tax, requiring a Form 709 filing if the gift exceeds the annual exclusion of $18,000. The recipient takes over the original cost basis of the shares for future capital gains calculations.
Transfer via Platforms: This is the most straightforward transfer. Most US brokerage platforms (Fidelity, Charles Schwab, Robinhood, etc.) have a dedicated, often online, feature for gifting stocks to another US account. You will need the recipient’s account number and other details. The transfer is typically electronic and happens within a few business days.
The Final Word: Platform Capabilities and Expert Guidance
While platforms are making the gifting of US stocks much easier, their capabilities are still limited by international regulations. For domestic transfers within India, platforms have streamlined the process. For cross-border gifts, the feasibility depends on the legal framework.
Regardless of the scenario, a few steps are non-negotiable:
1. Documentation: Always create a formal gift deed. This is your legal record of the transaction.
2. Professional Advice: The tax laws and regulations are complex and subject to change. Consulting a tax professional specializing in cross-border transactions is the single most important step you can take to avoid future complications.
