What is Off Market Shares Trading? – Procedure and Tax Treatment

By Advisorymandi
27-November-2018 10:40:23 AM
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In recent times, it cannot be denied that trading of shares has become quite a hassle-free process as shopping online. An investor can buy or sell shares from the comfort of his/her home, office or just sitting at a coffee shop using a laptop or smartphone. Many people may not know that there is also another way of trading, which is known as Off-market shares trading. Let us know about this trade in detail.

What is Off Market Trading of Shares?

An off-market trade is basically buying or selling of shares based on a predetermined price and terms between the buyer and seller.  Here, the person who sells the shares is known as the transferor and an individual who receives or buys the shares is called transferee. Some of the common reasons for carrying out off-market trade are mentioned below:

  • Transferring shares between two Demat accounts.
  • Transferring ownership of shares owned by one person to another Individual or entity.
  • Gifting shares to family members.
  • Shifting of shares between a client and sub-broker.
  • Carrying out transactions in unlisted securities.

 

Important Point to Remember: In case of transferring of shares through the off-market route, payment is settled privately between the transferor and transferee. In case, the shares have been gifted to the family members, no transaction is involved.

 

 

Off Market Trading Procedure

There are some off-market trading procedures required to be carried out for the smooth process:

It is important that both the transferor and transferee must have a Demat account with any two depositories i.e. National Securities Depository (NSDL) or Central Depository Services (India) (CDSL). The two individuals have the same or different Depository Participant (DP) can engage in the off-market trading activity.

Delivery Instruction Slip (DIS): Here, the seller of shares is required to give a DIS to the Depository Participant. In the DIS, it is mentioned where it is instructed to the seller to transfer the shares to the buyer’s Demat account.

Security Details:  The DIS must include important things, which are:

  • International Securities Identification Number (ISIN)
  • The number of shares to be transferred
  • Date on which the two parties i.e. transferor and transferee will enter into an agreement

A very important point that must not be forgotten here is that the DIS must be signed by the transferor. Moreover, correct details must be filled in the DIS and avoid overwriting.

Depository Participant Details: Here, the seller must provide some necessary details to the transferee, which is:

  • Name of the DP
  • DP Identity Document (ID)
  • Reason or purpose of transferring DP

Tax on Off-Market Trade

Just like any other transaction, the taxes on the off-market trading generally depend upon the period for which they are held. If the shares have been gifted, say from father to son, then there is no tax liability. If the shares have been held for more than 12 months before the sale, it will not attract any tax but eligible for the longterm capital gains (LTCG).  In case the off-market trading takes place within or less than 12 months, then the transferor will have to pay the short-term capital gains tax depending upon his/her income bracket.

 

Conclusion

Previously, there was no requirement to provide the reasons for carrying out the off-market trading. However, with the rising cases of money laundering and other harmful activities, an individual has to give a proper response for carrying off-market trading. In case, the response is unsatisfactory, then the trade may be canceled. So, it is important that the transferor must know the proper rules or terms and conditions about such trades to avoid any inconvenience later.

 

Note: All information & data provided in this article is for the educational purpose as well as to give general information on the finance & economy, not to provide any professional advice or service. Views & opinions are not biased against the company and do not affect any official policy or any other agency, an organization within the content.

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Author: Advisorymandi

AdvisoryMandi is India's most trusted Stock Market Advisory marketplace covers NSE, BSE, MCX & NCDEX. Invest with confidence and harness the power of AdvisoryMandi to make smarter investment decisions in Stocks, Indices, Commodities, Forex & IPO.

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Arkabrata Kundu
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Arkabrata Kundu
3 months 9 hours ago

If a person had acquired a listed company’s share off-market during 2014, and sold the same in 2018-19 through his demat account, then how this LTCG shall be reported? I think this will not qualify for Sec.112A as STT was not paid at the time of acquisition.

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