With the Sensex crossing 30000 points, increasing number of retail investors are lured into secondary markets. However, the accounts that have seen recent transactions are quite low. Last week, the disinvestment secretary divulged that of the two crore demat accounts only one crore are active.
If you are one of those who hold multiple demat accounts, only one of which is actively used by you for transactions then you can reduce the annual maintenance cost charged by brokerages. These costs no longer remain the miniscule sum that they hitherto were. Today annual maintenance costs range Rs 650-1,100 per annum.
One usually fails to account for the demat account charges while calculating the overall stock gains. But an Ahmedabad-based senior citizen is now able to save Rs 4,500 a year as he consolidated the holdings of seven demat accounts he held into one. He had to take some pains as the many of these demat accounts were jointly held with different family members. But if you have opened different accounts just to segregate the holdings or gave in to the low-brokerage offers by various firm, then it would be easier for you. So, how do you go about transferring the shares from one demat account to another under various circumstances?
Normal transfer:
The cheque book-like slips issued while opening a demat account can be put to use for a normal transfer of shares. Also called the delivery instruction slip. You will have to fill in the details of the shares to be transferred along with the demat account details where you wish to transfer them and submit the slip to your old broker. To transfer shares from multiple demat accounts, you needn't fill up multiple forms. A single request form to transfer the holdings to one demat account is enough.
However, ensure you mark it "off-market transaction". To avoid frauds, all high-value transactions (exceeding Rs 5 lakh) are verified by the depository. This is to prevent fraudulent transfer of securities.
Joint account:
Have you been using demat accounts jointly with your spouse, parents, brother or sister? To transfer shares from a jointly held account, the delivery instruction slip will have to be signed by all the owners.
Death of owner:
Though nomination is essential for all financial instruments, there are times when investors forget to nominate or individuals nominated years ago aren't relevant today due to events such as divorce or death, etc. If the appointed nominee is still around the holdings are transferred to him/her once a copy of the death certificate is submitted and the identity of the nominee is verified.
The procedure becomes a little complicated if the demat account holder has not appointed a nominee. In such a situation, the legal heir has a claim to the shares held if the value is below Rs 1 lakh. If the value is higher, a competent court's orders may be needed before the shares are transferred to his account. In case one of the joint-holder dies, the shares are transferred to the account of the surviving member. If all joint holders die, the shares go to the nominee.
Securities with lock-in periods:
Some instruments, especially tax-saving infrastructure bonds or ELSS funds, come with lock-in periods and cannot be directly transferred to another demat account. However, there is a way out. The securities with lock-in periods can be transferred only by the issuers. To get them transferred, the account holder will have to first get these instruments rematerialised. Once they are converted to physical certificates, you can hold them as physical shares or units or get them dematerialised again in another demat account. Note, that this is possible only if the security owner and the demat account holder are the same person.
Similarly, if you have taken a loan against securities in your demat account (pledged shares) you cannot transfer them without the lender's permission. You can seek permission of the lender, who if agrees then the securities can be transferred.
Tax implications:
Securities received as inheritance are exempt from tax. Also, if you move your shares from one account to another, there is no tax implication. The transfer of shares to accounts of specified relatives (spouse, parents, siblings, children and other lineal relatives) are also tax-exempt. Any asset transferred to a non-relative is treated as a gift and is taxed along with the recipient's income if the value exceeds Rs 50,000 in a year.
There are tax implications even if it is not a gift. If the transfer involves payment by the receiver, it is treated as a private deal and any capital gain accruing to the owner is taxed as income at the normal rate. This is because off-market transactions are not routed through an exchange and, hence, do not attract a securities transaction tax (STT).
Charges involved:
Transferring securities from one account to another involves paperwork with nominal charges. A transfer to another account involves charges that vary from Rs 25-100, or 0.01-0.04% of the value of securities. This adds up to Rs 50-200 for transferring securities worth Rs 5 lakh. The charges for rematerialising securities vary from as little as Rs 3 to Rs 65 per certificate. However, keep in mind that by paying this one-time charge, you can save on the annual recurring charge of Rs 650-1,100 per demat account that you hold.
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