Tax implications of Narayana Murthy’s gift to grandson
Late last week, Infosys chairman emeritus N.R. Narayana Murthy gifted shares worth ₹240 crore of the company he co-founded to his four-month-old grandson Ekagrah Rohan Murthy , as per a disclosure to the stock exchanges.
With this magnanimous gift, Murthy’s grandchild now holds 1,500,000 shares, equivalent to a 0.04% stake in India’s second-largest information technology company, an exchange filing showed. To be sure, such gifting is part of an Indian tradition where people gift shares, gold, cash, and other assets to their grandchildren. This, though, raises questions about the tax implications for both the giver and the receiver.
No immediate tax impact Ekagrah’s 0.04% stake in the company makes him possibly the country’s youngest millionaire. Following this transaction, Murthy’s own stake in the Bengaluru-based company has fallen from 0.40% to 0.36%, the stock exchange filing said.
Taxation experts say there is no tax incidence in the hands of recipient, whether minor or an adult, if the gift is from a relparent, ative. Should the gift come from a non-relative and exceed ₹50,000 in value, it would be taxed under income from other sources. For minors, this income would be combined with that of the parent who earns more, according to section 64 of the Income Tax Act.
Thus, gifts from relatives bring no tax burden upon reception.
However, any income or gains generated from these gifts in the future are subject to tax. In the case of minors, the tax obligation falls on the parents rather than the donor. Tax on share sale Minors, with parental assistance, can sell gifted shares, incurring a long-term capital gains tax of 10% on gains exceeding ₹1 lakh annually. This income is also subject to the clubbing provisions, being taxed under the parent with the higher income.
The cost of acquisition for tax purposes depends on the purchase date of the shares. For shares acquired before the capital gains tax revision on 1 February 2018, the valuation as of 31
January 2018 (the highest stock price quoted on exchanges) determines the cost. Recipients benefit from the original donor’s holding period, affecting the taxation on any future sale of shares. Should the holding exceed one year, it qualifies for long-term capital gains tax.
“There is no immediate tax impact for the recipient. In such cases, the tax liability is deferred to the point when the share sale is made,” said Nitesh Buddhadev, Mumbaibased chartered accountant and founder of Nimit Consultancy.
Dividends on shares held by minors are added to the income of the higher-earning following the Income Tax Act’s section 64 clubbing provisions. This income is then taxed according to the parent’s income tax slab as part of their overall income from other sources.
Infosys stake
Rohan Murthy, son of Narayana Murthy and Sudha Murty, and his wife Aparna Krishnan announced the arrival of their baby boy in November 2023. The newborn, named Ekagrah, signifies unwavering focus and determination in Sanskrit. This addition marks the third grandchild for the Murthy family, which also has two grand-daughters born to their daughter Akshata Murty, wife of Britain’s prime minister Rishi Sunak.
As of December 2023, Infosys’ promoter and promoter group owns 54,86,43,979 shares, or 14.78% of Infosys Ltd. Of that, Akshata Murthy, Narayana Murthy’s daughter and the first lady of the UK, owns 3,89,57,096 shares, accounting for 1.05% of the company. Rohan Murty owns 6,08,12,892 shares and Sudha Murty, who was recently nominated to the Rajya Sabha, owns 3,45,50,626 shares, which respectively translate to 1.64% and 0.93% of the company.
Murthy’s grandchild now holds 1,500,000 shares, equivalent to a 0.04% stake in Infosys