The Securities and Exchange Board of India (SEBI) has proposed a new standard code that will smooth out the process of transferring securities from nominees to legal heirs, known as TLH (Transmission to Legal Heirs). SEBI proposes this standard code to ensure the correct taxation of such transactions.
The Capital Markets Regulator stated in a consultation paper that the new code will be used to inform the CBDT (Central Board of Direct Taxes) about such transfers by the registrars, depositories and other reporting entities. The main aim of this move by SEBI is to prevent mistakenly treating these transmissions as sales that are taxed in the name of the nominees.
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At present, some transactions of securities from nominees to legal heirs result in capital gains tax for the nominees because these transfers are recorded as regular sales.
SEBI noticed that such transmissions are excluded from the definition of a "transfer" for income tax purposes by clause (iii) of Section 47 of the Income Tax Act, 1961. It emphasised that the securities eventually belong to the heirs of the original holder only and that nominees act as trustees for legal heirs.
SEBI said that the standard code would make the reporting of these transactions more consistent and transparent, enabling proper application of income tax provisions. This proposal by SEBI takes recommendations from a working group of RTAs (Registrar and Transfer Agents) after consulting with multiple stakeholders and follows the given suggestions.
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The SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and the Master Circular for RTAs dated June 23, 2025, will continue to govern the procedural requirements for transmitting securities to legal heirs.
The public comments on the draft are allowed until September 2, 2025. If it gets approved, RTAs, listed issuers, depositories, and depository participants have three months after the issuance of the final version to execute the changes in their systems and use the 'TLH', new standard code by SEBI.
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