SEBI’s Latest Circular Simplifies Transmission of Securities in India – What Investors and Intermediaries Need to Know

Introduction: A Welcome SEBI Move for Investor Protection and Ease of Compliance

If you have ever handled estate planning, succession, or transmission of securities in India, you know how procedural delays and tax complications can turn a simple process into a compliance nightmare. In a significant step towards ease of doing investment and investor protection, the Securities and Exchange Board of India (SEBI) has issued a circular dated 19 September 2025, simplifying the transmission of securities from a nominee to legal heirs.

This circular is especially relevant for investors, legal heirs, depository participants, RTAs, listed companies, and SEBI-registered intermediaries, and has important implications for SEBI compliance frameworks in India. Without altering substantive law, SEBI has addressed a long-standing tax reporting issue that caused avoidable hardship to investors and nominees.

Why This SEBI Circular Matters: Background and Regulatory Context

Under Indian securities law, nomination enables a smooth transition of securities after an investor’s death. However, nominees act only as trustees or custodians, holding securities temporarily until they are transmitted to the rightful legal heirs.

Despite Section 47(iii) of the Income-tax Act, 1961, which clearly exempts transmission by succession from being treated as a “transfer”, nominees were often subjected to capital gains tax assessments during the transmission process. While refunds were technically available, the compliance burden, delays, and uncertainty created unnecessary friction for investors and heirs.

Recognising this gap between tax law and securities reporting, SEBI constituted a working group and consulted with the Central Board of Direct Taxes (CBDT). The result is a practical, compliance-friendly solution that aligns SEBI regulations, income-tax reporting, and investor protection objectives.

Key Highlights of the SEBI Circular on Transmission of Securities

The circular SEBI/HO/MIRSD/MIRSD-PoD/P/CIR/2025/130 introduces targeted procedural clarity while retaining existing transmission processes under SEBI regulations.

1. Nominee Clarified as a Trustee

SEBI reiterates that a nominee does not acquire ownership rights. The nominee merely facilitates the transmission of securities to legal heirs in accordance with succession laws — a critical clarification for SEBI compliance audits and dispute avoidance.

2. Introduction of “TLH” Code for Tax Reporting

To prevent erroneous capital gains taxation, SEBI mandates the use of a standard reporting reason code “TLH” (Transmission to Legal Heirs) by:

• Registrars to an Issue and Share Transfer Agents (RTAs)
• Depositories
• Depository Participants
• Listed Issuers

This ensures that tax authorities correctly recognise the transaction as non-taxable transmission, eliminating the need for refund claims.

3. No Change to Existing Transmission Procedures

Importantly, SEBI has not altered the substantive transmission process under:

• SEBI (LODR) Regulations, 2015
• SEBI Master Circular for RTAs (updated June 23, 2025)

The circular is purely a compliance alignment measure, not a procedural overhaul.

4. Mandatory Implementation Timeline

All reporting entities must update systems and processes to implement the “TLH” code from 1 January 2026, making this a key action item in SEBI compliance checklists for intermediaries.

Who Needs to Act: Compliance Implications for SEBI-Registered Entities

This circular has direct relevance for:

• Depositories and Depository Participants
• RTAs and Listed Companies
• SEBI-registered Portfolio Managers
• Investment Advisers
• Research Analysts
• Compliance Officers of regulated entities

Firms must ensure that internal reporting systems, SOPs, and compliance manuals reflect this change to avoid regulatory observations during inspections.

What This Means for Investors and Legal Heirs in India

For investors, this SEBI circular significantly improves:

• Estate planning certainty
• Speed of transmission
• Elimination of wrongful tax deductions
• Reduced compliance friction for legal heirs

For the broader ecosystem, it promotes better nomination practices, improves coordination between regulators, and strengthens trust in India’s securities markets.

Final Thoughts: A Practical SEBI Reform with High Impact

SEBI’s approach demonstrates how small procedural clarifications can materially improve investor experience, regulatory compliance, and ease of doing business. By aligning securities reporting with tax law intent, SEBI has reduced avoidable disputes and compliance costs.

For SEBI compliance consultants in India, this circular is a reminder that effective compliance is not just about rules — it is about interpretation, coordination, and implementation.