SEBI Introduces TLH Reporting Code for Transmission of Securities

Circular No. SEBI/HO/MIRSD/MIRSD-PoD/P/CIR/2025/130; Dated: 19.09.2025

1. Introduction

The Securities and Exchange Board of India (SEBI) has taken another step toward simplifying the securities transmission framework, specifically addressing the transfer of securities from a nominee to legal heirs. This initiative resolves practical tax-related issues that have arisen during the process, aligning it with the provisions of the Income Tax Act, 1961.

2. Current Issue in Transmission of Securities

At present, when a nominee transfers securities to the rightful legal heirs, the transaction is sometimes incorrectly treated as a ‘transfer’ for tax purposes. In such cases, capital gains tax is levied, despite the fact that Section 47(iii) of the Income Tax Act, 1961 clearly exempts such transmissions from being considered a taxable transfer. While nominees could previously apply for refunds, this created unnecessary delays and procedural inconvenience.

3. Introduction of the ‘TLH’ Reporting Code

To streamline the process and prevent misclassification, SEBI, in consultation with a Working Group and the CBDT, has introduced a new reporting code—‘TLH’ (Transmission to Legal Heirs). With effect from January 1, 2026, all reporting entities, including Registrars and Transfer Agents (RTAs), listed companies, depositories, and depository participants, will be required to use this code when reporting such transactions to the CBDT. This ensures accurate reporting and prevents wrongful tax assessments.

4. Benefits of the Reform

The introduction of the ‘TLH’ code brings multiple benefits. It ensures that securities passed on to legal heirs through nominees are not wrongly taxed as capital gains, thereby reducing the compliance burden on nominees and heirs. It also ensures uniform reporting standards, prevents disputes with tax authorities, and builds confidence among investors regarding smoother succession planning.

5. Conclusion

This initiative builds upon SEBI’s earlier reforms, which streamlined the process of appointing nominees and clarified that nominees act only as trustees of securities until the legal heirs claim their rights. By working with the CBDT to introduce the ‘TLH’ reporting code, SEBI has provided both clarity and efficiency to the securities transmission process, strengthening investor protection and ensuring tax compliance without unnecessary procedural hurdles.

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