Narayana Murthy gifts Infosys shares worth Rs 240 crore to his 4-month-old grandson: How are gifts taxed in India?

March 21, 2024

Narayana Murthy, Infosys founder has gifted Infosys shares worth over Rs 240 crore to his four-month-old grandson Ekagra Rohan Murthy.
Although all the details of this transfer of shares are not known, like any other income, gifts are also subject to tax in certain circumstances. However, there are situations where gifts may be exempt from tax.

Narayana Murthy is once again in the headlines:

Narayana Murthy, co-founder of Infosys is once again in the news, this time not for his mantra of working 70 hours a week. Mr Murthy has transferred over Rs 240 crore to his four-month-old grandson, Ekagra Rohan Murthy. Shares have been gifted, which has joined the list of millionaires in India. An exchange filing shows Ekagra holds 15,00,000 shares of Infosys, equivalent to 0.04 per cent stake in the company. The filing revealed that the transaction was conducted “off-market”. Mr Murthy’s stake in the tech company has declined from 0.40 per cent to 0.36 per cent to 1.51 crore shares.

Narayana Murthy's grandchildren:

Ekagra was born in November 2023 to Rohan Murthy and Aparna Krishnan. He is the third grandson of Narayan and Sudha Murthy, who are also grandparents to Akshata Murthy and two daughters of UK Prime Minister Rishi Sunak. The name Ekagra was reportedly inspired by the character Arjuna in the Mahabharata. The Sanskrit word ‘Ekagra’ means unwavering focus and determination.

Narayana Murthy's Infosys:

Infosys, which started in 1981 with a modest investment of ₹ 10,000, has today become India’s second largest tech company. Prolific writer and philanthropist Sudha Murthy played a key role in building the company from her meager savings in the early days of Infosys. After devoting more than 25 years to leading the Infosys Foundation, she retired from her role in December 2021 and continued her charitable efforts through her family’s foundation. Recently she has become a member of Rajya Sabha.

Narayana Murthy's heated debate:

Last year, Mr Murthy had sparked a heated debate by urging youth to work 70 hours a week. Making the comments during a podcast, he said the country’s educated population works “extremely hard” at the expense of the less fortunate. Many agreed with Mr Murthy’s views, but many others criticized the ideas, questioning whether it would cause irritation. Responding to the backlash, Mr Murthy defended his statement and said that a lot of “good people” and “NRIs” agreed with his statement.

How gifts are currently taxed in the hands of the recipient:

Here’s how gifts in the hands of the recipient are currently taxed under Section 56 of the Income Tax Act. Gifts of money received from non-relatives without/insufficient consideration, or immovable property, and specified movable properties are treated as gifts (see table). Their value is included under ‘Income from other sources’ and taxed as per your applicable income tax slab. If the gift is to a minor, the parent/legal guardian is responsible for tax.

Gifts that are taxable:

Money: If you receive money gifts (by way of cash, cheque, etc.), taxation is applicable only if the aggregate value of such money exceeds Rs 50,000 in a year. Below this limit no tax applies.

So, if you receive cash gifts worth Rs 75,000 during a year, the entire amount will be taxable and not just Rs 25,000 (amount exceeding Rs 50,000).

Movable property: If you receive certain specified movable properties without any consideration during a year (that is, you do not make any reciprocal payment for them), and their aggregate fair market value exceeds Rs 50,000, the entire amount is taxable. Will be subject to. For example, if you receive jewelery and paintings worth Rs 20 lakh in a year, the entire amount will be taxable as it exceeds the limit of Rs 50,000.

If you receive certain specified movable properties for inadequate consideration (that is, you make some reciprocal payment for them), you will be taxed on the difference between the aggregate fair market value and the consideration paid for the properties, if the difference The amount is more than Rs 50,000. For example, if you receive jewelery and paintings worth Rs 20 lakh during a year for which you paid a total of Rs 12 lakh, Rs 8 lakh will be taxable.

Note that taxation is applicable only in the case of specified movable assets: shares/securities, jewellery, archaeological collections, paintings, paintings, sculptures or any work of art and bullion, and virtual digital assets (such as cryptocurrencies).

Immovable property: If you receive any immovable property (land and/or building) without any consideration (no reciprocal payment is made) where the stamp duty value (property value determined by the government) exceeds Rs 50,000, the entire Stamp duty value is subject to tax. So, if you receive a property with a stamp duty value of Rs 10 lakh as a gift, this entire amount will be taxed.

If you receive any immovable property for inadequate consideration (some mutual payment is made), then stamp duty is taxed on the difference between the value and the consideration paid, if the difference amount exceeds Rs 50,000. Suppose, you have received a property with stamp duty value of Rs 25 lakh for which you have paid Rs 10 lakh, then Rs 15 lakh will be taxable as gift.

Note that, in case of cash gifts and movable assets, the annual limit of Rs 50,000 (for each of them) applies on the total value of gifts received during the year. But in case of real estate, a limit of Rs 50,000 is applicable on each property transaction. So, if you receive multiple properties as gifts in a year, such that none of the properties violate the limit of Rs 50,000, no tax is applicable.

Gifts that are not taxable:

In all the above cases, taxation is applicable only if the gifts are received from non-relatives and they exceed the limit of Rs 50,000 (applicable separately for money gifts, movable property and immovable property). Under the Income Tax Act, gifts received from relatives are not taxable, irrespective of their monetary value. But who is considered a ‘relative’? Suppose there is a pair, H and W. Relatives of H include a) spouse of H, b) brother or sister of H, c) brother or sister of W, d) brother or sister of H’s parents, e) any lineal ascendant or descendant of H or W , and spouse of b), c), d) and e). Hereditary ascendant includes blood relatives like parents, grandparents and great-grandparents and hereditary descendants include children, grandchildren, etc. Gifts received on the occasion of marriage, under a will or through inheritance are also not subject to tax. Note that marriage is the only occasion on which gifts received are not taxable. Gifts received on any other occasion are subject to tax. Further, the exemption also applies in cases where certain funds are owned by funds, foundations, educational and medical institutions etc. (as specified under section 10(23C)) or charitable trusts and institutions (as specified under section 12A ) is obtained from. 12AA and 12AB).