Sebi Streamlines Securities Transfer: 'TLH' Code Eases Tax Exemption

The Securities and Exchange Board of India (Sebi) has introduced a significant update to streamline the process of transferring securities from nominees to legal heirs. Previously, these transactions were sometimes classified as taxable capital gains, leading to inconvenience for those involved.

Under Section 47(iii) of the Income Tax Act, 1961, such transmissions should be exempt from taxation. However, errors often led to unnecessary tax implications for nominees. To rectify this, Sebi, in consultation with the Central Board of Direct Taxes (CBDT), has recommended using the new 'TLH' reporting code, ensuring accurate reporting and preventing unwarranted taxation.

Effective January 1, 2026, all reporting entities, including Registrars and Transfer Agents (RTAs), listed companies, and depositories, are mandated to use the 'TLH' code when documenting these transactions. Sebi had previously enhanced nominee appointment processes, establishing nominees as Trustees of the securities until they are transferred to legal heirs per succession plans.