Explainer: how SEBI made inheritance of shares less of a legal hassle
Passing on shares after a death used to be slow and painful. Now the rules are simpler. This explainer shows how SEBI made inheritance of shares less of a legal hassle. SEBI is the Securities and Exchange Board of India. It is the body that sets the rules for the stock market. SEBI’s new steps cut paperwork, fix an unfair tax problem, and let families share shares more easily. We break it all down in plain words below.
When a person who owns shares dies, those shares must move to the right people. This move is called “transmission”. It is different from a normal sale. Until recently, the process could mean court papers, long waits, and even a surprise tax bill. SEBI’s changes make this easier.
What is transmission of shares?
“Transmission” means shares pass from a dead owner to their heir or nominee. A “nominee” is the person the owner names to receive the shares after death. A “legal heir” is the family member the law says should inherit. Sometimes the nominee and the heir are the same person. Sometimes they are not.
In the past, families often needed heavy legal proof to claim shares. This could mean a “will” (a legal paper saying who gets what) or a “succession certificate” (a court order naming the legal heirs). Getting these took time and money. SEBI wanted to cut this burden.
The unfair tax problem SEBI fixed
Here was a strange catch. When a nominee passed shares on to the real legal heir, the system sometimes treated it like a sale. That could trigger “capital gains tax”. This is the tax you pay on profit when you sell an asset. But this was not a real sale. The nominee was only passing the shares to the rightful heir.
The law already says this is not a transfer. SEBI pointed to Section 47 of the Income Tax Act, 1961. It exempts such transmission from being treated as a sale. The problem was in the reporting, not the law.
To fix it, SEBI created a special code called “TLH”. It stands for “Transmission to Legal Heirs”. Firms must now use this TLH code when they report these moves to the tax department (the CBDT). The code marks the move as a tax-free transmission, not a sale. So the nominee no longer gets an unfair tax bill.
Key facts
| Item | Detail |
|---|---|
| SEBI circular date | 19 September 2025 |
| New reporting code | TLH (Transmission to Legal Heirs) |
| Old threshold (single name, no nominee) | Rs 1 lakh per account |
| New threshold (single name, no nominee) | Rs 5 lakh per account |
| Simple-documents limit | Holdings below Rs 5 lakh |
| System changes live from | 1 January 2026 |
Less paperwork and a higher limit
SEBI also cut the documents needed for small holdings. Where the owner had named a nominee, the heir no longer needs heavy papers like a will or succession certificate. The nominee can receive the shares with far less hassle.
SEBI also raised a key limit. Say the shares are held in “dematerialised” form. That means held as electronic units, not paper certificates. If they are in a single name with no nominee, a simpler process used to apply only up to Rs 1 lakh per account. SEBI has now raised that limit to Rs 5 lakh per account. So more families can use the easy route.
For holdings below Rs 5 lakh, firms and registrars now use one standard format and a common set of documents. This removes the old confusion where every firm asked for different papers.
Multiple nominees can now share shares
Earlier, nomination often worked on an “either-or” basis. Now owners can split their shares between many nominees by percentage. For example, you can leave 40% to a spouse and 30% each to two children.
This is a big shift. It lets a person plan how their wealth is shared, in clear numbers, without a court fight later. It also lowers the chance of family disputes over who gets what.
FAQ
What is the TLH code?
TLH stands for “Transmission to Legal Heirs”. Firms use it when reporting share transfers from a nominee to a legal heir. It marks the move as tax-free, so the nominee avoids a wrong capital gains tax bill.
Do I still need a will or succession certificate?
If the owner named a nominee, usually no. The nominee can receive the shares without heavy legal papers. These documents are mainly needed in special cases, like large holdings with no nominee.
What is the new limit for the easy process?
For dematerialised shares held in a single name with no nominee, the easy-route limit rose from Rs 1 lakh to Rs 5 lakh per account. Below Rs 5 lakh, a standard format and common documents apply.
Why it matters (especially for India / founders)
More Indians than ever own shares and mutual funds. So more families will one day inherit them. A clunky process meant grief plus paperwork plus a possible tax shock. SEBI’s fix removes much of that pain.
For founders in wealth-tech and fintech, this opens a clear path. You can build simple tools that guide families through transmission. You can highlight the TLH code, the higher Rs 5 lakh limit, and multi-nominee splits as features. These are exactly the moments when users feel lost and want help.
SEBI has been busy making the market easier to use. The regulator also eased certification norms for non-core advisory staff. Both moves point the same way: less friction for ordinary investors. Smoother rules can also support confidence, the kind seen when bank stocks led a market rebound.
The takeaway
SEBI has made inheriting shares far less of a legal hassle. The new TLH code stops an unfair tax bill. The easy-route limit jumped from Rs 1 lakh to Rs 5 lakh. Heavy court papers are not needed when a nominee is named. And owners can now split shares among many nominees. For families, it means less stress at a hard time.
Sources
- Financial Express — Explainer: how SEBI has made inheritance of shares less of a legal hassle
- SEBI — Smooth transmission of securities from nominee to legal heir (19 September 2025)
- Outlook Money — SEBI simplifies share transmission process from nominee to legal heir
