Sebi eases securities transfer, introduces TLH code; simplifies nominee-to-legal heir process

Markets regulator Sebi on Friday announced a simplified framework for transferring securities from a nominee to the legal heir, aimed at reducing unnecessary tax and compliance hassles.Under the current system, such transfers were sometimes treated as “sales” and assessed for capital gains tax, even though Section 47(iii) of the Income Tax Act, 1961, exempts them. Nominees could claim refunds later, but this process often caused delays and inconvenience, PTI reported.To address this, a Sebi Working Group consulted the Central Board of Direct Taxes (CBDT) and introduced a new reporting code – “TLH” (Transmission to Legal Heirs). The code will ensure that such transfers are reported correctly and are not taxed as capital gains.“It has been decided that a standard reason code viz. ‘TLH’ shall be used by the reporting entities while reporting the transmission of securities from nominee to legal heir, to the CBDT so as to enable proper application of the provisions of the Income Tax Act, 1961,” Sebi said in its circular.From January 1, 2026, all reporting entities – including RTAs, listed companies, depositories, and depository participants – will be required to use the TLH code for such transactions.Earlier, Sebi had also streamlined the process of appointing nominees. The nominee acts as a trustee of the securities of the original security holder and transfers them to the legal heir according to the succession plan, ensuring smoother transition of assets.