“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.
The new reporting code becomes effective from January 1, 2026.
The nominee acts as a trustee of the securities of the original security holder and transfers the securities to the legal heir as per succession plan.
Under the current system, when a nominee transfers securities to a legal heir, the transaction may sometimes be treated as a ‘transfer” and assessed for capital gains tax.
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Sebi in its circular noted that the payment of tax by the nominee in such a situation may not be appropriate considering that in terms of clause (iii) of Section 47 of the Income Tax Act, 1961, such transmission is exempted and not considered as ‘transfer. “While the nominee may claim refund of such tax, this process causes inconvenience to the nominee,” the circular said.To resolve this, Sebi formed a Working Group which engaged directly with the Central Board of Direct Taxes (CBDT) and recommended the use of a new reporting code ‘TLH’.This code will help ensure such transfers are correctly reported and not taxed as capital gains, Sebi circular said.
Sebi has directed all reporting entities, including RTAs, listed companies, depositories, and depository participants to use the ‘TLH’ code from January 1, 2026 when reporting these transactions to CBDT.
Earlier, Sebi streamlined the process of appointing nominees.
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