Sebi eases process of transferring securities from nominee to legal heir

Markets regulator Sebi on Friday simplified the process of transferring securities from a nominee to the legal heir.

Currently, when a nominee transfers securities to a legal heir, the transaction may sometimes be treated as a "transfer" and assessed for capital gains tax.

However, under Section 47(iii) of the Income Tax Act, 1961, such transmission is exempt and should not attract tax. While the nominee can claim a refund later, this causes unnecessary inconvenience.

To resolve this, a Working Group consulted the Central Board of Direct Taxes (CBDT) and recommended the use of a new reporting code "TLH" (Transmission to Legal Heirs). This code will help ensure such transfers are correctly reported and not taxed as capital gains.

"It has been decided that a standard reason code viz. "TLH" shall be used by the reporting entities while reporting the transmission of securities from nominee to legal heir, to the CBDT so as to enable proper application of the provisions of the Income Tax Act, 1961," Sebi said in its circular.

From January 1, 2026, all reporting entities, including RTAs, listed companies, depositories, and depository participants, would use the "TLH" code when reporting these transactions to CBDT.

Earlier, Sebi streamlined the process of appointing nominees. The nominee acts as a Trustee of the securities of the original security holder and transfers the securities to the legal heir as per the succession plan.