How has SEBI Simplified the Transfer of Securities to Legal Heirs?
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Synopsis
In a groundbreaking development, SEBI has simplified the process for transferring securities from nominees to legal heirs, effective January 1, 2026. This change aims to eliminate confusion and tax complications, while providing clarity to investors. Discover how this new code will transform the securities transmission process.
Key Takeaways
- SEBI introduces new 'TLH' code for smoother transitions.
- Effective from January 1, 2026.
- Reduces tax-related complications for investors.
- Standardization in reporting across all entities.
- Enhanced clarity for legal heirs in securities transmission.
New Delhi, Sep 19 (NationPress) In a significant effort to alleviate confusion and enhance compliance, the capital markets regulator SEBI has streamlined the process for transferring securities from nominees to legal heirs.
According to a circular released by the regulator, starting January 1, 2026, all reporting entities, which include depositories, listed companies, RTAs, and depository participants, must utilize a new code called “TLH” (Transmission to Legal Heirs) when reporting these transfers to the Central Board of Direct Taxes (CBDT).
At present, the transmission of securities from a nominee to a legal heir is sometimes misclassified as a taxable “transfer” and assessed under capital gains regulations.
Despite Section 47(iii) of the Income Tax Act providing an exemption for such transmissions, this misunderstanding often compels investors to apply for refunds later, leading to unnecessary hassle.
To resolve this issue, SEBI convened a working group that engaged with CBDT and recommended the implementation of a standardized reporting code.
SEBI stated in its circular, “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.”
In recent months, the regulator has made several initiatives to simplify processes related to nomination and the transmission of securities.
Previously, SEBI had eased the process of appointing nominees to facilitate smooth transitions of securities after an investor's demise.
Nominees serve as trustees and are responsible for transferring the securities to the rightful legal heir in accordance with the succession plan.
According to SEBI, this new initiative will help mitigate unnecessary tax complexities, offer clarity to investors, and standardize reporting among market participants.
Point of View
I recognize the significance of SEBI's recent measures in simplifying the transfer of securities. This initiative not only enhances compliance but also protects investors from undue tax burdens. SEBI's proactive approach in addressing these concerns demonstrates its commitment to fostering a transparent and efficient capital market, ensuring that the rights of legal heirs are respected.
NationPress
20/09/2025
Frequently Asked Questions
What is the new code introduced by SEBI for securities transfer?
The new code introduced by SEBI is 'TLH', which stands for Transmission to Legal Heirs, effective from January 1, 2026.
Will the new code affect how taxes are handled during securities transfer?
Yes, the new code aims to prevent securities transfers from being misclassified as taxable transactions, thereby reducing tax complications for investors.
Who are considered reporting entities under the new regulations?
Reporting entities include depositories, listed companies, RTAs, and depository participants.
What was the issue with the previous method of transferring securities?
Previously, securities transferred from nominees to legal heirs were sometimes incorrectly treated as taxable transfers, causing inconvenience for investors seeking refunds.
How does this change benefit investors?
This change provides clarity, reduces tax complications, and ensures a more uniform reporting process, benefiting both investors and market participants.
