How to Transfer Shares From One Demat Account to Another?

Currently, Indian retail investors are looking beyond traditional investment assets like gold and real estate. However, since 2016, the stock market has provided greater returns than gold and real estate. Demat accounts - i.e., Dematerialized Accounts - make it very convenient to electronically trade stocks and help investors buy and sell stocks quickly.

Initially, one may open multiple Demat accounts for various purposes such as evaluating brokers or experimenting with strategies. If you hold more than one Demat account, it is important to learn how to transfer shares from one Demat account to another.

Why do you need to transfer shares from one Demat account to another?

There are primarily two reasons why you may need to transfer shares from one Demat account to another Demat account; to consolidate or distribute shares or for change in brokerage services.

1. Consolidate or Distribute Shares

   In the beginning, people like to experience the interface and services of different brokers. However, this makes it difficult to keep a track of them all. Later, they select a broker that best aligns with their financial goals and investment strategies, and carries out all future transactions through them. At such a time, it is recommended to move shares from the non-active Demat accounts to the active ones to keep your assets together for better management and improved investments over time.

   By docking shares in a single Demat account, you can get a 360° view of your investments and their performance. This also helps in saving overhead costs like annual maintenance fees. Alternatively, one might want to distribute their shares amongst other Demat accounts if the need arises for plans like a child’s education or retirement. You may also need to distribute your shares to separate long-term and short-term investments.

2. Change in brokerage Services

   There are two different types of brokers in India: discount brokers, and full-service brokers. Discount brokers charge very little fees and provide the minimal service of facilitating the buying and selling of shares. Full-service brokers charge higher fees but provide more resources like personalized recommendations, real-time market research, industry analysis, etc. Whenever you wish to switch from one type of broker to another; to save on brokerage by hiring discount brokers or to avail the expertise of full-service brokers, you will need to transfer your shares from one Demat account to another.

Who are the participants while transferring shares from one Demat account to another?

When you transfer shares from one Demat account to another, the following participants are involved in the process:

1. Current Broker
2. Investor
3. New Broker
4. Depository

There are two types of depositories in India that are authorized to hold the shares of the account holders - NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited). The type of transfer of shares from one Demat account to another depends on whether both the Demat accounts are in the same depository or not.

How to Transfer Shares from One Demat Account to Another?

There are two methods—online and offline—for moving shares between Demat accounts. Although the manual option is more common, the online procedure is gradually gaining momentum. The process differs somewhat for each method.

Manual or offline share transfer

You can transfer your shares manually if the online method appears too complicated.

When making an intra-depository or off-market transfer, the account holder must use a debit instruction slip or a DIS booklet given by their depository participant (DP). In the case of an intra-depository transfer, follow the process below:

1. Make a list of the shares to transfer. Additionally, you must record the ISIN number or International Securities Identification Number. The ISIN, or International Securities Identification Number, is a 12-digit code necessary to identify securities such as funds, shares, bonds, stocks, loans, and more.
2. Note the target client ID. It is a 16-character code that includes the client's and DP's ID, essentially the new Demat account.
3. If the transfer mode is intra-depository or off-market, you must choose the column labelled 'off-market transfer'. If the transfer mechanism is inter-depository, pick the 'inter-depository' column. Exercise caution while making this choice.
4. Submit the completed and signed DIS slip to the account holder's existing broker or DP and obtain their acknowledgement receipt.

Within three to five business days, the new broker will receive the shares from the current broker, who will transfer the necessary shares from the old Demat account. The existing broker may charge a fee for this process, which varies from broker to broker.

Online share transfer

The account holder must visit the CDSL website and register for an account. Then, you must send the form to the DP. After the DP has finished the verification procedure, the account holder can make further transfers. Follow these steps to complete the transfer of shares:

1. After accessing the CDSL website (www.cdslindia.com), click on the 'Register Online' option. Then, from the menu, choose the EASIEST option (Electronic Access to Securities Information and Execution of a Secured Transaction).
2. Fill out the form with the necessary information. Enter your DP ID (the ID of your broker), BO ID (Beneficial Owner, who is the Demat account holder), email, phone number, and so on. You will receive a one-time password (OTP) to your registered cellphone number. In the box provided, enter the OTP. Your registration will be complete within 24 to 48 hours when your cellphone number is validated, and you will be able to transfer shares from one Demat account to another online.
3. After completing the form, choose "Print Form" from the menu.
4. Once the DP has completed the form's verification procedure, you will receive a password on your email address.
5. You, the account holder, can log in and transfer the shares using the password.

Manual Transfer

This mode of transfer involves filling out physical forms. If the two Demat accounts in question are in the same depository, then the shares do not circulate back in the market. This is called off-market, or Intra-depository transfer. If the two Demat accounts are in separate depositories, then the transfer is called an Inter-depository market. An account holder needs to follow the following steps to carry out these transfers:

• Collect a Debit Instruction Slip (or DIS booklet) from your depository participant(DP). This is the brokerage firm that your Demat account is registered with.
• Put down the names as well as the ISIN number of the equities, debts, stocks, etc that you need to move from one account to another. ISIN stands for International Securities Identification Number - it’s a 12-digit code that is used to validate the identity of financial securities.
• Put in the Target Client ID, which is a 16-character code that combines the client’s ID with the DP’s ID.
• Select the mode of transfer. If both the DPs are registered with the same depository, then select Intra-Depository or Off-market transfer. If the DPS in question is registered with different depositories, then select Inter-Depository transfer.
• Submit the filled-in DIS form to your existing broker, and do not forget to get an acknowledgement receipt from the broker.

That’s it. The broker will process the transfer in 3 to 5 days.

Online Transfer

People also have the option to transfer shares from one Demat account to another online. Follow the steps given below to transfer your shares from one account to another from the comfort of your home:

• Visit the CDSL website.
• Click on the register online link and fill in the form that comes on the screen.
• After completing the form, click on “Print Form”.
• This will initiate a transfer of the form to your Depository Participant(DP) in question.
• The DP will verify your form, and send a password to your registered email address.
• The password can then be used to register onto the myeasi (Electronic Access to Securities Information) platform, and the account holder can initiate a transfer of shares by themselves.

Benefits of transferring shares

The benefits of transferring shares from one Demat account to another Demat account are two-fold. First, it helps consolidate all shares into a single account. In the long run, handling multiple Demat accounts can become cumbersome. By consolidating shares, you can view all your holdings in one place and manage them better. Second, It can help you save costs like annual maintenance fees.

Time Required for Transfer of Shares

The maximum time taken for a transfer of shares from one Demat account to another should ideally be 3-4 hours. This is also dependent on whether the transfer is Inter-repository or Intra-repository. If you are transferring within the same repository, the time taken should be much lesser, ideally 30 minutes or less. However, for transfer from one repository to another, i.e. CDSL to NSDL or NSDL to CDSL, the shares may take up to 3-4 hours to transfer.

Tax implications when transferring shares

When transferring shares between one’s Demat accounts, there is no tax levied. This is because there is no transfer of ownership. However, if any income is earned from this transfer, it will be treated as small-term capital gains or long-term capital gains.

If this income is held for 12 months or more, it is treated as long-term capital gain and will be taxed at 10%. If the period of holding is less than 12 months, it shall be treated as short-term capital gains, and a tax of 15% is levied on such income. However, if the long-term capital gain is up to ₹10,00,000 is exempted from capital gain tax. The transfer of shares from your account to yourself does not affect your overall tax obligations.

Even when you are transferring shares to another person’s Demat account, it does not attract tax obligations as long as it is genuine and is backed by a genuine gift deed. This is to maintain an audit trail of the transfer. Section 47 of the Gift Tax Act has provisions for ‘gifts’ to be excluded from ‘transfer’ which makes giving shares as gifts despite them being capital assets, non-taxable.

It is important to note that shares transferred to another person are taxable in the hands of the recipient if the fair market value of the asset transferred is more than ₹50,000, under section 56(2) of the Income Tax Act.

Conclusion

In most cases, investors start with multiple Demat accounts until they have chosen a broker or strategy that delivers the best results, facilitated by a Demat app. This makes it important for every investor to know how to transfer shares from one Demat account to another.

The transferring of shares from one account to another is a simple and easy process, once you have the above steps down pat. According to the type of transfer, i.e. intra-repository or inter-repository, it may take up to 3-4 hours. While transferring to one’s account does not have any tax implications, transferring shares to another person’s Demat account may attract taxation.