A Comprehensive Guide on how to Transfer Shares Between Demat Accounts

The introduction of the demat account has revolutionised trading by eliminating the need for physical certificates. In today's digital age, online trading offers convenience, security, and privacy to investors, attracting a growing number of individuals to participate in the stock market. To engage in stock trading, it is crucial to have a demat account, which holds all your securities electronically. Additionally, a trading account is necessary to place buy or sell orders. This guide  aims to delve on the aspect of transferring shares between demat accounts; we will learn how to transfer shares from one demat to another.

What is Transfer of Shares?

Once a Demat account is created, one can explore the other features it offers. In addition to holding shares and securities, a Demat account can also transfer shares between accounts. In simple terms, transfer of shares means transferring shares voluntarily to another account. It makes it easy for a shareholder to see all of his shares in one place due to its consolidation.

Who are the Participants While Transferring Shares from One Demat Account to Another?

Transferring shares from one Demat account to another involves the following participants:

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

NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited) are the two depositories authorized to hold the shares of account holders in India. When shares are transferred from one Demat account to another, it depends on whether both accounts are at the same depository or not.

Why Transfer Shares from One Demat to Another?

Although it seems like it's self explanatory, a share transfer is a process by which existing shares, along with their rights and obligations, are transferred from one demat account to another. That said, there are various situations that may lead investors to transfer their shares to another demat account; let's explore some of the common reasons in detail:

Consolidate Investments: Perhaps the most likely reason for transferring shares between demat accounts is to consolidate all assets into a single demat account. This even aids in improved management and organisation.

Evaluate Brokers: Initially, investors might experiment with different brokers to familiarise themselves with their services. Eventually, they choose a broker that aligns with their financial goals and investment strategies; they choose the one that provides the best services. 

Reduce Brokerage Costs: Likewise, Investors who already have open a demat account may opt to transfer their shares to another Demat account offered by a depository participant that provides superior services and features at a lower cost compared to their current provider. So, investors may transfer their existing shares to the low-cost demat account. 

Brokerage Preference: Discount brokers and full-service brokers are two distinct types of brokerage services available. While discount brokers offer limited services at a lower cost, full-service brokers charge higher fees but provide comprehensive services and enhanced transaction facilitation. Consequently, investors might decide to change their investment strategies, necessitating a shift from one type of broker to another.

Things to Know before Transferring Shares

Before we look into the process of the transfer, know that the integral players involved in the process include; the investor, the existing broker (existing depository participant), the new broker (new depository participant), and the depository—the NSDL, CDSL, or both. If both demat accounts are under the same depository, it's known as an intra-depository transfer. 

Conversely, if the brokers are registered with different depositories—the transfer of shares is between different depositories, resulting in an inter-depository transfer. The charges for transfer of shares from one demat to another may vary depending on some variable, such as whether it is an intra-depository transfer or an inter-depository transfer. 

How to Transfer Shares from One Demat Account to Another?

Investors can learn how to transfer shares from one Demat Account to another by understanding the basic steps.There are two primary methods for transferring shares between demat accounts in India: online and manual (offline). 

The first option is to transfer shares from one demat to another online. This method offers convenience and security. The second method is the manual method, also called the offline method to transfer shares from one Demat account to another. 

Time Required for Transfer of Shares

A transfer from the investor's old Demat account to the new broker Demat account takes approximately three to five business days. Depending on the broker, these services are charged differently.

What are the Tax Implications of Transferring Shares?

There is no tax imposed when there is share transfer from one Demat to another. The reason for this is that ownership is not transferred. Regardless, any income earned from this transfer will be considered short- or long-term capital gains.

When this income is held for 12 months or more, it is treated as a long-term capital gain and is taxed at 10%. If the holding period is less than 12 months, it is treated as short-term capital gains, and a 15% tax is imposed. If the long-term capital gain exceeds Rs. 10,00,000, it will be exempt from capital gains tax. Transferring shares from an account to yourself does not affect your tax obligations.

When you transfer shares to another person's Demat account, you are not subject to tax obligations if the transfer is genuine and is accompanied by a genuine gift deed. The purpose of this is to maintain an audit trail of the transfer. Under Section 47 of the Gift Tax Act, 'gifts' are excluded from 'transfer', making giving shares as gifts, despite them being capital assets, tax-free.

Under Section 56(2) of the Income Tax Act, shares transferred to another person are taxable in the hands of the recipient if the fair market value of the asset is more than Rs. 50,000.

Benefits of Transferring Shares

Transferring Shares simplifies the process of consolidating all shares into a single account. Furthermore, when you find a stockbroker with better services, such as a quicker trading platform, better security, etc., you may change your stockbroker or open a Demat account with them. In such cases, you may need to transfer shares from your old Demat account to new account. 

The difficulty of tracking multiple Demat account may lead you to merge them all into one. As a result, you would need to transfer your shares from your Demat account to primary Demat account. Additionally, you may require separate Demat accounts depending on your different financial needs, such as child education, retirement, taxation benefits, etc. This may require you to transfer shares between Demat account.

Conclusion

Transferring shares between Demat accounts has become simpler with the advent of online methods. Investors can now request transfers conveniently from anywhere, using secure online platforms. Whether you opt for the manual or online method, understanding the process and associated charges ensures a smooth transfer experience. Embrace the digital revolution and take advantage of the flexibility offered by transferring shares between Demat accounts.