SEBI Introduces ‘TLH’ Code for Smooth Transmission of Securities from Nominee to Legal Heir in CBDT Reporting [Read Circular]

The Securities and Exchange Board of India (SEBI) has recently issued a circular, introducing a standard reason code “TLH” (Transmission to Legal Heirs) when reporting nominee-to-legal-heir transfers to the Central Board of Direct Taxes.

SEBI has explained that ‘nominees’ act as ‘trustees’ who pass securities to legal heirs under succession.

The issue was put up for consideration by the securities board after noting that under existing practice, nominees have sometimes been assessed for capital gains tax when effecting transmission despite there being an exemption under clause (iii) of Section 47 of the Income Tax Act, 1961. While the nominee may claim a refund of such capital gains tax, this process causes much inconvenience to them.

What is a Reason Code?

A reason code is a standardized data flag used in reporting to tax authorities to indicate the nature of a transaction. In this instance the TLH code is intended to identify transmissions that are not “transfers” for tax purposes and therefore fall within the exemption under Section 47(iii) of the Income Tax Act, 1961.

Using a uniform reason code for this purpose would directly indicate to the CBDT systems and downstream processors that the transaction should receive the statutory tax treatment applicable to nominee-to-legal-heir transmissions rather than normal transfer treatment.

The new reason code is slated to ease the process as it enables an identifier for the CBDT to circumvent any ambiguity in reporting.

The change has been made following the recommendations of a Working Group constituted by the CBDT which recommended that reporting entities include a dedicated code for nominee-to-legal-heir transmissions.

SEBI has maintained that existing transmission rules would remain governed by the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and the Master Circular for Registrars to an Issue and Share Transfer Agents dated June 23, 2025.

Registrars to an Issue and Share Transfer Agents (RTAs), listed issuers, depositories and depository participants have been directed to implement necessary system changes and apply the TLH code from January 1, 2026.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates