In a move to simplify the inheritance process for securities, SEBI has proposed a new standard code, ‘TLH’ (Transmission to Legal Heirs). This code is designed to be used by registrars, depositories, and other financial institutions when reporting the transfer of securities from a nominee to a legal heir to the Central Board of Direct Taxes (CBDT).
The primary aim of this initiative is to prevent these transmissions from being mistakenly taxed as regular sales, which has led to nominees being incorrectly charged with capital gains tax. According to Section 47(iii) of the Income Tax Act, 1961, such transfers are not considered a “transfer” for tax purposes. SEBI clarifies that nominees act as trustees for the legal heirs, and the securities rightfully belong to the heirs of the original holder.
The proposal follows recommendations from a working group of Registrars to an Issue and Share Transfer Agents (RTAs) and aims to bring more consistency and transparency to the reporting process. Public comments on the draft are open until September 2, 2025. If the proposal is approved, affected entities—including RTAs, listed issuers, and depositories—will have three months to implement the necessary system changes. This measure will ensure that the correct tax provisions are applied to these transactions.