Off market share transfer: What it is?

Classroom

oi-Roshni

By Roshni Agarwal

Published: Monday, March 24, 2014, 12:56 [IST]

Shares or equities traded on the bourses can also be transferred in the name of the other person through the off market channel. More so often, through this route title or ownership in the shares is transferred to the other when the transaction involves no consideration amount as in a gift of such shares held by the concern to the relative or legal heir i.e. son or daughter. Or share transfer is made between the institution and payment settlement is made privately.

The route is beneficial in the sense that for the person intending to execute share transfer through off market route, cost of broking is eliminated, as in the process the services of a share broker are no longer required.

Offloading of unlisted shares through off-market route

The route comes as an only recourse to investors who wish to offload their holdings in unlisted stocks. Also, for shares that are held only in physical formats despite the guidelines to maintain stocks in dematerialized form, can be transferred through this channel only. For such a transfer to take place, transferor needs to provide the transfer form i.e. duly signed with all details concerning the name of the shares as well as the units to the recipient and thereafter the recipient needs to visit the company for effecting transfer in his name.

The transferor has to give the recipient a duly signed transfer form with all the relevant details about the shares. The recipient will then have to approach the company whose shares are being transferred to change the ownership rights.

Procedure of execution of share transfer through off-market route

For the transfer through the route, transferor as well as the recipient both have to give standing instruction to their depository participants to execute the transfer to the particular party and at the same time, recipient for receiving the shares in his account. Any mismatch in the standing instruction shall not complete the transaction or transfer. The delivery instruction slip or DIS is the same in case of both the off-market and market share transfer. However, you need tick the option for off-market transaction in the delivery instruction note. For the transfer to effect, all details inclusive of the name of the recipients DP, DP identity number of the recipient, share ISIN number unique to every company as well as the number of units have to specified correctly.

Also as a compliance measure and for the transfer to effect successfully, purpose for such a transaction has to be specified. Moreover cautiousness must be observed in respect of the execution date for the transfer.

With no restraints for such kind of off-market share transfer in the prior times, in order to render the financial system more transparent and curb any fraudulent transaction as well as money laundering activities, depository participants are now advised to accumulate finer details by both the clearing entities in respect of all such trades. And in case the investor, fails to give a proper reason in lieu of such a transaction or the transaction seems to be suspicious, transfer shall not be effected by the DP.

Tax implication in case of off-market share transfer

Transaction in financial instruments involves or results in tax implication and transaction in shares through the off-market route also attracts tax liability and is dependent on the term for which the shares are held by the investor before selling. In case the shares are held by the investor for over a year, long term capital gain shall apply while in the other case short term capital gain based on the tax bracket of the concern shall be payable.

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