SEBI has issued a circular dated 19th September 2025 (SEBI/HO/MIRSD/MIRSD-PoD/P/CIR/2025/130) (“Circular”) providing a simplified mechanism for the smooth transmission of securities from nominees to legal heirs. The circular addresses difficulties faced by nominees in respect of capital gains tax assessments and prescribes a uniform reporting code to be adopted by market intermediaries.
Background
Under the existing framework, upon the demise of a security holder, the nominee acts as a trustee of the securities and is required to transfer the securities to the legal heir as per the applicable succession plan. However, during such transfers, nominees were being assessed for capital gains tax, notwithstanding that transmission of securities is exempt from being treated as a “transfer” under clause (iii) of Section 47 of the Income Tax Act, 1961. While the nominee could subsequently claim a refund of such tax, the process resulted in significant inconvenience.
Working Group Recommendations
To alleviate these issues, SEBI had constituted a Working Group (“WG”), which, after consultations with the Central Board of Direct Taxes (“CBDT”), recommended the introduction of a specific reporting code for such transactions. The WG proposed the adoption of the reason code “TLH” (Transmission to Legal Heirs) to be used by reporting entities while reporting such transactions to the CBDT.
SEBI’s Directions
Pursuant to the WG recommendations, SEBI has directed that:
1. A standard reason code “TLH” shall be mandatorily used by reporting entities while reporting transmission of securities from nominee to legal heir to the CBDT, ensuring correct application of the Income Tax Act, 1961.
2. The existing procedural requirements for transmission of securities shall continue to apply as per the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and the Master Circular for Registrars to an Issue and Share Transfer Agents dated 23rd June 2025 (as updated from time to time).
3. Registrars to an Issue and Share Transfer Agents (RTAs), Listed Issuers, Depositories, and Depository Participants are required to make necessary system changes and implement the new reporting framework with effect from 1st January 2026.
