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Summary: If you’ve named a nominee for your demat account or mutual funds, you might think your family is protected from hassles. But a small reporting error in the system can turn a simple handover into a tax headache and it happens more often than you think. SEBI now wants to fix this with a new set of rules. Check them below.
The Securities and Exchange Board of India (SEBI) has proposed new rules to streamline the transfer of market securities from nominees to legal heirs after an investor’s death. The measure aims to prevent such transfers from being wrongly classified as sales, which leads to unnecessary tax and compliance issues for the nominees.
At present, every demat account and mutual fund folio must have a nominee. In a consultation paper, SEBI noted that a nominee’s role is purely custodial; to hold securities until they are transferred to the rightful heirs. But in many cases, when nominees hand over securities, the transactions are mistakenly recorded as market sales, creating a tax liability for them even when they are not selling the investment.
To address this, SEBI has suggested introducing a standard reporting code—‘TLH’ or ‘Transmission to legal heirs’, for use by registrars, depositories and other intermediaries when reporting such transactions to the tax department.
This is to ensure these transfers are correctly classified and processed without creating tax or compliance headaches.
SEBI has directed registrars, listed companies, depositories and depository participants to make the necessary system changes to implement the proposal within three months. Public feedback on the proposal is open until September 2, 2025.
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Also read: SEBI eyeing key changes in how some mutual funds operate
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