MUMBAI:In a move aimed at easing tax compliance and streamlining inheritance procedures in the securities market, the Securities and Exchange Board of India (Sebi) has introduced a standardised reporting mechanism for the transfer of securities from a nominee to a legal heir.
Through a circular issued on Friday, Sebi has instructed all reporting entities—such as depositories, registrars, and share transfer agents—to use a uniform reason code ‘TLH’ (Transmission to Legal Heirs) when reporting such transactions to the Central Board of Direct Taxes (CBDT).
This step is expected to facilitate the accurate application of capital gains tax rules under the Income Tax Act, 1961, especially in cases where securities are passed on to legal heirs after the death of the original holder.
Sebi clarified that the use of the ‘TLH’ code will help tax authorities distinguish between routine nominee-based transmissions and those involving rightful legal heirs, ensuring that the correct tax treatment is applied.
The regulator’s move is part of broader efforts to enhance transparency and consistency in securities transfers involving deceased investors. It also seeks to avoid potential legal and tax complications that often arise when nominees are not the same as legal heirs—a situation that can lead to disputes and delays in asset distribution.
This directive is applicable with immediate effect, and all reporting entities have been advised to align their systems and processes accordingly.
The clarification comes amid increased awareness about succession planning in the capital markets, and as more investors opt to nominate individuals for their demat and mutual fund holdings. However, Sebi has consistently maintained that nominees are custodians—not beneficiaries—unless they are also the legal heirs.
The standardisation introduced through the ‘TLH’ code is expected to make it easier for tax officials, intermediaries, and families to handle such sensitive transitions without ambiguity
