In a recent article, ‘Reclaiming forgotten investments not an uphill task’ published on July 6, 2020, we had laid out the detailed procedure for claiming your forgotten investments from the Investor Education and Protection Fund (IEPF). Following this, a reader had requested for clarity on the procedure for transmission of shares, that is, for transferring shares of deceased shareholders to their legal heirs.
Here is a lowdown on the procedure.
Demat
If the deceased had a demat account with a depository participant, the procedure is simple. The survivor or the legal heir needs to submit a duly filled up transmission request form (TRF) which can be downloaded from the NSDL website, to the depository participant (or broker).
Along with the TRF, a copy of the death certificate of the deceased, duly attested by a Notary Public or by a Gazetted Officer has to be submitted.
In cases where the demat account was jointly held (by the deceased and his/her survivor), or where the deceased holder of the account has specified the nominee in the account, the list of documents to be submitted ends there — a duly filled TRF and a copy of death certificate (attested as mentioned above).
No nominee
In cases where no nomination was made in the account, additional documents have to be submitted by the legal heirs or survivors. These include an affidavit for claiming legal ownership and an indemnity bond — both on a non-judicial stamp paper.
That apart, if there are multiple successors to the deceased, additional documents are required to establish the exclusive rights of the claimant. This can be done by way of a duly executed family settlement deed, where each member of the family agrees upon how the assets of the deceased will be distributed among them.
In the absence of a family settlement deed, a copy of a no-objection certificate from all the legal heirs of the deceased, who have decided to give up their right on the shares, has to be submitted.
The formats for all these documents can be found in the annexures to the TRF.
In cases where the value of shares held in the demat account is ₹5 lakh or more, other documents such as a succession certificate, letter of administration and a probate of will, shall also be required.
The depository participants may also require a surety form in certain cases.
Physically held
For shares held in physical form, the process of transmission gets a little cumbersome, since the successor will have to make a separate claim for shares held by the deceased in each company. The TRF, original share certificates and additional documents, will have to be submitted to the Registrar and Share Transfer Agent (RTA) of each company, whose shares were held by the deceased, separately. However, a single application would suffice, in cases where companies have the same RTA.
If the shares of the deceased were held in physical form, while they can be transferred to the legal heirs as is, dematerialisation of the shares is a must, if you intend to transfer it later on.
Survivors can complete the process of transferring the shares first and then get them dematerialised. As an alternative, survivors can submit a Transmission-cum-Dematerialisation Request Form (TDRF) to a depository participant, along with the other documents required. Harsh Jain, Co-founder and COO, Groww, says, “If you submit a TDRF, the depository participant will verify your documents and forward the form to the RTA of the company to fulfil both the transfer and dematerialisation request at once.”
If the shares held were unclaimed for more than seven years, chances are that the company has transferred them to the IEPF. Harsh explains that, “the legal heirs of the deceased have to first complete the process of transmission, before making any claim to the IEPF authority. Further, the claim to IEPF should include a letter of entitlement issued by the respective company.”
Time limit
Companies are required to process the claims within 30 days from the date of lodging the TRF if the shares were held in physical form. If where shares were held in dematerialised form, the process has to be completed within seven days from the date of filing the TRF.
A company needs to register the transmission or refuse it by providing valid reasons, within 30 days from the date of receipt of the transmission request.
“Even when the transmission request is denied, claimants can make an appeal to the National Company Law Tribunal (NCLT),” clarifies Harsh. The appeal can be made within 60 days from the date of receipt of the notice of refusal. If it is a private company, the appeal has to be made within 30 days.
If the applicant does not receive any notice from the company, then the applicant can file an appeal to the NCLT within 90 days from the date of intimation of transmission to the company. For a private company, this period is 60 days.
Taxation
Investors who have inherited shares need to note that,mere inheritance does not lead to a tax incidence. Tax is required to be paid only when the shares are eventually sold by the legal heirs after being transferred to them. In such instances, one must note that the cost to the previous owner (the deceased) should be considered for the purposes of computing the tax on capital gains.
Taxpayers are also allowed the benefit of cost indexation from the date the respective shares were originally bought by the deceased.
However, Archit Gupta, Founder and CEO ClearTax, advises that the legal heir should file the income tax returns for a deceased person, first. “For this, they will have to register themselves on the income tax website,” he adds.
The tax on income earned by the deceased will now have to be paid by the legal heir. “However, in such cases, the liability of the legal heir is limited to the extent of the assets he inherited,” says Archit.