The starting point for every investment in the share market is opening a Demat account. A Demat account is needed for mere investing as well as trading in the stock markets. A Demat account is an account held by an investor or a trader with the registered broker where the shares certificates are held in the dematerialized form.
The charges for opening a Demat account are nominal and also require basic KYC details to be submitted with the registered broker. A Demat account allows the trader or the investor to access their portfolio from anywhere and at any time to make buy and sell decisions with the aim of maximizing their wealth. On some occasions, the investors or traders may need to transfer shares from one Demat account to another.
There has been a huge influx in the number of Demat accounts that have been opened in the post-pandemic period itself. The increase in the share market trading and investments has given space for many new brokers to enter the market and cater to this increased demand. Such new brokers may offer their services at lower brokerage which can be one of many reasons for the transfer of the shares from one Demat account to another.
There can be several reasons for the transfer of shares from one Demat account to another. Some of such reasons are mentioned below.
- When the investor has multiple Demat accounts with different brokers and wishes to bring them under a single roof for better management or reduction of costs.
- When the investor wants to change the depository participant that helps in generating better returns at reduced costs.
- When the investors do not have a good experience with their existing broker or when they do not offer quality services or good customer support.
- When investors want to start trading too and wish to move to a broker that can provide multiple services under a single roof.
A few key factors to consider in the transfer of shares from one Demat account to another are mentioned below.
- The charges levied by the stockbroker for the transfer of shares to another Demat account.
- The cost of closing the Demat account with the existing broker.
- Also, the investor needs to return any unused Delivery Instruction Slip (DIS) to the broker.
The transfer of shares from one Demat account to another can be broadly classified into two modes. The details of the same are mentioned below.
Manual transfer of shares
The manual transfer of shares is the traditional mode or the offline mode of transfer from one Demat account to another. The investor needs to provide the following details for the manual transfer of shares.
- The beneficiary owner ID (16 digit unique ID)
- Along with the BO ID, the investors also need to provide the ISIN which is the International Securities Identification Number. This number is used to identify the exact shares that need to be transferred.
- A piece of important information to provide is the mode of transfer i.e., if the transfer is intra-depository (transfer within the same depository) or inter-depository (transfer to another depository).
The form with all the information mentioned above has to be duly submitted after signing the same. The signature at this time should match the one submitted at the time of opening the account.
Online transfer of shares
The steps for the transfer of shares through the online mode are mentioned below.
- The investors will have to be registered for the online transfer facility at the CSDL and the NSDL portal.
- In the case of CSDL – The users will have to visit the portal and click on Register for Easiest. Following this, they will have to enter the Demat details, account details and submit the OTP.
- In the case of NSDL – The users will have to visit the portal and click New User Registration. Following this, they will have to click on Speed-e and then register.
- After the form is filled out and submitted at the website, the investors will have to take the printout which is to be submitted to the broker.
- The broker will then submit the form to the depository for verification of the details.
- After due verification, the account is activated and the investor can login to their account using valid credentials to transfer the desired shares.
Here are some tax implications when transferring shares in India:
- If you transfer shares of an Indian company, you may be subject to capital gains tax .
- The tax rate for long-term capital gains (LTCG) on shares is 10% if the gains exceed Rs. 1 Lakh.
- The tax rate for short-term capital gains (STCG) on shares is your applicable income tax rate.
- If you transfer shares of a foreign company that derive their value substantially from assets in India, then capital gains derived on the transfer are subject to income tax in India.
- Payment for such shares is subject to Indian withholding tax (WHT).
Conclusion
The transfer of shares from one Demat account to another is a routine procedure and can be carried out through a manual or online procedure as per the convenience of the investor. There are several reasons why the transfer of shares from one Demat account to another is carried out. However, it is not a decision that should be taken lightly and investors have to ensure that they open their Demat accounts with registered brokers.
FAQs
it usually takes approximately 3 to 5 days for the transfer of shares from one Demat account to another.
When the shares are transferred to another Demat account held by the same investor, there are no tax implications. However, when the transfer is in the name of a different person, the reason for the transfer has to be mentioned. If the transfer is through a gift deed and within the approved limits, there will be no tax liability otherwise, such transfer is liable for tax under capital gains.
The Demat account number is a 16 digit number where the first 8 digits refer to the depository participant and the following 8 digits are unique for the investor.
Yes, It is mandatory to link a valid and active bank account to the Demat account.
The participants involved in the transfer of shares from one Demat account to another are,
-Investors
-Current broker
-New broker
-Depository participant.
