Consultation Paper; dated: 12.08.2025
Background on Current Reporting Practice
At present, the transmission of securities from a nominee to a legal heir is not distinctly identified in reporting systems. Instead, such transactions are often treated as routine sales of securities, without distinguishing them as non-sale transfers arising from inheritance or succession. This lack of specific reporting creates potential issues in applying the correct tax provisions.
SEBI’s Proposed Change
To address this gap, the Securities and Exchange Board of India (SEBI) has proposed the introduction of a new standard reason code, ‘TLH’ (Transmission to Legal Heir). This code would be used by reporting entities—such as brokers, depositories, and other intermediaries—when reporting such transmissions to the Central Board of Direct Taxes (CBDT).
Objective of the Proposal
The primary aim of introducing the ‘TLH’ code is to ensure that transmissions to legal heirs are correctly recognized in tax records. By doing so, the proper provisions of the Income Tax Act, 1961, can be applied without misclassifying such transfers as taxable sales. This measure is expected to reduce ambiguity and improve compliance for both taxpayers and reporting entities.
Timeline and Call for Feedback
SEBI has invited public comments on the proposal, with the submission deadline set for September 2, 2025. Stakeholders, including market intermediaries, investors, and legal professionals, are encouraged to share their views to help refine and finalize the proposed reporting framework.
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