Tax Relief on Inherited Shares: SEBI Floats Proposal for Smoother Transfer

Tax Relief on Inherited Shares: SEBI Floats Proposal for Smoother Transfer

The Securities and Exchange Board of India (SEBI) has proposed tweaking regulations to make the transmission of securities from nominees to legal heirs easier and smoother, while avoiding unnecessary tax-related complications.

In its draft circular, SEBI noted that a nominee who acts as a trustee of the securities of the original holder may be assessed for tax when transmitting these securities to the legal heir, despite provisions under the Income Tax Act that do not consider such transmission a “transfer.”

SEBI added that payment of capital gains tax by the nominee in such cases may not be appropriate, given that the securities ultimately belong to the legal heir and are merely being transmitted by the nominee.

To streamline the process and resolve unintended taxation issues, SEBI has proposed that a standard reason code — “TLH” — be used by reporting entities when reporting the transmission of securities from nominee to legal heir to the Central Board of Direct Taxes (CBDT). This measure aims to ensure proper application of the provisions of the Income Tax Act, 1961.

To examine these complexities, SEBI had formed a working group of Registrars to an Issue and Share Transfer Agents, which held discussions with various stakeholders. Based on these consultations, the group recommended using the “TLH” code for such transactions when reporting to the CBDT.