Capital markets regulator Sebi on Tuesday proposed the introduction of a standard reason code to streamline the transfer of securities from nominees to legal heirs and ensure appropriate tax treatment for such transactions.
In a consultation paper, Sebi suggested introducing a specific reason code ‘TLH’ (Transmission to Legal Heirs) to be used by registrars, depositories and other reporting entities while intimating the Central Board of Direct Taxes about such transmissions.
The move seeks to enable proper application of the provisions of the Income Tax Act, 1961.
Currently, transmission of securities from nominee to legal heir of the original holder, some transactions are being treated as normal sale of securities.
This has resulted in capital gains tax being levied on nominees, even though clause (iii) of Section 47 of the Act does not consider such transmissions as “transfers” for tax purposes, Sebi said.
The regulator noted that the nominee merely acts as a trustee for the ben