The Securities and Exchange Board of India (SEBI) has issued a circular to streamline the process of transfer of shares from the nominee to the legal heir. Its purpose is to simplify compliance and overcome tax related problems in matters of succession.
Previously, when a nominee transferred securities to a legal heir, this transaction was sometimes considered transfer and it could be taxed. However, under Section 47 (3) of the Income Tax Act, 1961, such transfer should not be taxed. Although the nominee can later claim refunds, it leads to unnecessary inconvenience.
SEBI consults CBDT
To solve this problem, a work group consulted the Central Board of Direct Taxes (CBDT) and recommended the use of a new reporting code, “TLH” (transfer to legal heirs). This code will help ensure that such transfer is properly identified and they are not imposed capital profit tax.
SEBI said in his circular, “It has been decided that reporting institutions will use a standard code, namely TLH, while transferring securities from the nominated person, so that the provisions of the Income Tax Act, 1961 can be properly followed.” On August 12, SEBI issued a counseling paper on the matter and sought a response from the stakeholders.
From January 1, 2026, all reporting institutions, including RTA, listed companies, deposits and depository participants, will use the “TLH” code while reporting these transactions to CBDT. Earlier, SEBI had streamlined the process related to the appointment of the nominated person.
The regulator clarified that this change addresses tax related issues, but the existing procedural requirements will be applicable for transfer of securities under SEBI LODR rules and RTA structure.
