Mutual Fund

1. Nil capital gains tax on transmission of securities to legal heir:

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In a significant investor-friendly move, the Securities and Exchange Board of India (SEBI) has streamlined the process for smooth transfer of securities from nominees to legal heirs.

The market regulator has introduced a standardized reporting mechanism to resolve taxation-related challenges in such transmissions. After this, the transfer of securities to legal heirs will not be considered for capital gains considerations which will reduce the unnecessary burden for taxpayers. Currently, nominees act as trustees of the securities upon the death of the original holder and are responsible for transferring them to the rightful legal heirs as per succession plans.

However, during this process, nominees often face capital gains tax assessments, despite the fact that under Section 47(iii) of the Income Tax Act, 1961, such transmissions are not considered “transfers” and are exempt from tax. Though refunds can be claimed later, the process has caused avoidable inconvenience. In order to address this inconvenience, SEBI has set up a Working Group which, in consultation with the Central Board of Direct Taxes (CBDT) has recommended the use of a new standardized reporting code. Based on the recommendation, SEBI has mandated that all reporting entities use the code “TLH” (Transmission to Legal Heirs) while reporting such transactions to the CBDT.