Steps to Transfer Shares from One Demat Account to Another
A Demat account is a form of account used to hold, trade and transact shares and securities in electronic form. While trading in stocks and securities online, shares and securities are purchased and held in a Demat account, and thereby facilitating an easy trade for the users. A Demat account can hold all forms of securities investments such as shares, exchange -funds, bonds, government securities, and mutual funds in one single place.
Investors can open a demat account online and operate similarly as a savings accounts. But, instead of holding money, it holds shares, stocks and securities. Like saving accounts, your demat account is credited when shares are purchased, and the demat account is debited when shares are sold. Also, just like in the case of your savings account, you can transfer shares, stocks and securities from one demat account to another. This transfer does not result in a change in ownership, tax implications unless the shares have been transferred to another person’s account.
But why would a person maintain multiple demat accounts and transfer shares and equities internally within their own different accounts? Here are some of the reasons why investors and individuals transfer shares from their one demat account to another,
How to transfer shares from one demat account to another
- Generally, people would prefer to hold a single for simplicity and ease of operations. But when an investor changes their broker, they need to transfer shares from their old demat accounts to their new demat account.
- People holding multiple demat accounts, who might wish to consolidate their accounts for ease of operations and reduction of their cost, will require to transfer their shares and securities held in their various demat accounts to a single demat account.
- Investors who wish to segregate their portfolio might maintain multiple demat accounts. For example, one demat account might be maintained for long-term investments and other might be kept for short-term trading/investments. In such cases, the shareholders might be required to transfer shares from one demat account to another, in case of any changes in their investment strategies.
- Investors and shareholders might be looking to upgrade or downgrade their demat accounts from a discount broker to a full-service broker and vice versa in case of downgrading their account. These days, with the ease to open Demat account online, investors and shareholders might upgrade or downgrade their demat accounts due to change in their investment strategy, cost reduction exercises etc. In such cases when a shareholder or investor downgrades or upgrades their demat account, there is a requirement of transferring shares from one account to another.
- A long-term investor might wish to store or hold certain shares for a long-term basis as part of their future planning which might be used for occasions like children’s higher education retirement, marriage etc. In such cases as well, there might be a requirement of transferring shares from one demat account to another.
Before we talk about how to transfer shares from one demat account to another, we need to know different types of share transfers. There are mainly two forms of transfers, i.e. inter-depository transfer and intra-depository transfer.
In India, there are two different type of depositories, namely the CDSL and NSDL. In simpler words, any transfers between CDSL to CDSL or NSDL to NSDL are known as intra-depository transfer, and any transfer of shares done between CDSL to NSDL or NSDL to CDSL is known as an inter-depository transfer. SEBI allows investors to Open Demat account online and freely transfer stock, equities and securities in between the different depositories, i.e. NSDL and CDSL.
The said differentiation in knowing the type of transfer matters as they have their own distinct process for transferring shares between demat accounts. The account holder is provided with a debit instruction slip or a DIS booklet. The demat account holder needs to record the shares they wish to transfer along with a unique ISIN number. It is important to correctly enter the ISIN number as the entire transaction is based upon the ISIN numbers. Then, fill the 16-character code known as the Target Client id which is a combination of the client id and the DP id. Upon filling up of all the details, the account holder needs to select the mode of transfer. For intra-depository transfers, an off-market transfer process is to be decided and for inter-depository transfers, the option of “Inter-Depository” needs to be selected.
With individuals and investors having the ease to open Demat account online,
Individuals and investors can use their Demat account online
services to transfer shares from one demat account to another with just a click of a button. But, also during an online transaction, it is essential to fill in the correct details to ensure that the shares are transferred to the intended account, and the transaction is not declined.
The implication of transferring shares from one demat account to another – Self and another person
As per SEBI regulations, the demat account holder is required to specify the purpose of transferring shares from one demat account to another. Shares can be transferred between demat accounts of the same person or demat accounts of a different person, and both these forms of transfer have its own implication.
Below are some of the implications of transferring shares from one demat account to another
- When a demat account holder transfers share within their own demat accounts held with different DRs, there is no tax implication or change of ownership.
- If a person transfers shares from their demat account to the demat account of their spouse or children as a gift, these do not have tax implication and are considered as legitimate transfers, if they are accompanied by a registered gift deed. There are no tax implications in these transfers though there is a change of ownership of the shares.
- In an event a demat account holder transfers shares from their demat account to another person, there might be capital gains tax implications, and there is a change of ownership. The capital gains will be calculated from the original date of purchase.
- In an event, shares are transferred to the demat account of the legal heirs of the deceased, the capital gains will be calculated from the original date of purchase.
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