What is Off-Market Transfer

Step 1 – Obtain the DIS: The transferor (sender) obtains a Delivery Instruction Slip (DIS) from their Depository Participant (DP). For an off-market sale, a separate off-market annexure may also be required.

Step 2 – Enter transfer details: Fill in the transferor’s and transferee’s DP ID and Client ID, the ISIN of the security, quantity of shares, applicable reason code (such as gift, transfer between own accounts, or off-market sale), and execution date.

Step 3 – Add the target beneficiary: The transferee’s demat account must be added as a target beneficiary to the transferor’s account before initiating the transfer. Since 1 January 2024, this addition requires OTP-based authentication through the depository.

Step 4 – Submit the DIS and authenticate the transfer: The transferor signs and submits the DIS to the DP. On the execution date, the depository sends a link and OTP to the transferor’s registered mobile number and email address. The transferor must authenticate the transaction using the OTP.

Step 5 – Receive the securities: The transferee’s DP processes the incoming securities and credits them to the transferee’s demat account. Depending on the process followed, the transferee may also need to submit a Receipt Instruction Slip (RIS).

Step 6 – Pay applicable charges: For off-market sales, stamp duty is collected automatically by the depository at 0.015% of the consideration. The DP may separately debit its applicable transaction charges.

Step 7 – Complete an online transfer: For online off-market transfers, the same process is completed digitally through the depository’s electronic facilities, such as NSDL’s SPEED-e or CDSL’s Easiest, instead of using a physical DIS.

An investor selling shares on the exchange and an investor gifting shares to a family member are doing structurally different things. The table below summarises the practical and regulatory differences between on-market and off-market transfers.

Both channels are SEBI-regulated and use the same demat infrastructure, but they serve fundamentally different purposes — on-market is price-discovery driven, off-market is consent-driven between two known parties.

Off-market transfers are used when securities need to be moved between demat accounts without executing the transaction through a public stock exchange. Common situations include:

• Gifting shares to family members: Investors may transfer shares to a parent, child, spouse, or other eligible family member as a gift. The appropriate “Gift” reason code is selected on the DIS, and the recipient does not pay any consideration.
• Inheritance and transmission: When a demat account holder passes away, securities may be transferred to the legal heir’s demat account through the applicable transmission process.
• Transferring shares between own demat accounts: Investors can consolidate their holdings by moving securities between their own demat accounts, such as from a CDSL account with one broker to an NSDL account linked to another intermediary. The “Transfer between own accounts” reason code is used.
• Off-market or private sale: Two parties may agree on a price and transfer shares directly without using a stock exchange. This can be relevant for unlisted shares, pre-IPO shares, ESOPs, or large block transactions where the parties prefer to avoid executing the trade on the open market.
• Pledge invocation under a Loan Against Securities: If a borrower defaults on an LAS, the lender may invoke the pledge and have the pledged securities transferred from the borrower’s demat account to the lender’s account, subject to applicable rules and procedures.
• Corporate restructuring: Mergers, demergers, and intra-group restructuring may involve off-market transfers to move securities between related entities.

The correct reason code must be selected when initiating an off-market transfer, as it helps determine the applicable processing, stamp duty, and potential tax implications.

Unlike a market trade, an off-market transfer generally does not attract Securities Transaction Tax (STT) or stock exchange transaction charges. However, investors may incur other costs depending on the type of transfer and the Depository Participant (DP). The typical cost structure includes:

• Stamp duty: For an off-market sale involving consideration, stamp duty is generally charged at 0.015% of the consideration value under the applicable stamp duty framework. Certain non-delivery debt securities may attract a different rate. Transfers without consideration, such as gifts or transfers between an investor’s own accounts, may be exempt from stamp duty, subject to applicable rules.
• DP transaction charges: Each DP determines its own fees for off-market transfers. Charges may be based on the transaction value or levied as a fixed amount per ISIN/debit. Some DPs may also charge an additional fee for processing a physical DIS.
• Depository charges: NSDL and CDSL may levy transaction-related charges on DPs. These costs are generally incorporated into the DP’s tariff structure rather than being separately collected from investors.
• GST: GST at the applicable rate, generally 18%, may be charged on the DP’s service or transaction fee.
• Pledge release charges: If the securities being transferred are pledged, such as shares pledged for a Loan Against Securities, the pledge may need to be released before the transfer. The lender or DP may levy applicable administrative or processing charges.

Investors should check their DP’s latest tariff schedule and applicable stamp duty rules to determine the exact cost before initiating an off-market transfer.

Off-market transfer and the pledge of shares for a Loan Against Securities are governed by the same depository system but serve very different purposes. Understanding the interaction is essential for any LAS borrower, especially during loan tenure, default, or release.

Key interaction points between off-market transfer and LAS pledged shares:

• During the LAS loan tenure: Once shares are pledged with a lender — such as Bajaj Finance — a lien is marked in the borrower's demat account. The pledged shares cannot be transferred off-market by the borrower until the lien is released. Any DIS submitted for those securities will be rejected by the depository as long as the pledge marking is active.

• Off-market transfer before pledging: If a borrower wants to consolidate holdings from a spouse's or family member's demat into their own demat before pledging for an LAS, that is a routine off-market transfer using the ""Transfer between own accounts"" or ""Gift"" reason code. The transfer must be completed and settled before the LAS pledge is initiated.

• Pledge invocation by the lender: If the borrower defaults on the LAS and the lender invokes the pledge, the depository moves the pledged shares from the borrower's demat to the lender's pledgee demat through an invocation mechanism. In the older PoA-based regime this was effectively an off-market transfer; under the current SEBI margin-pledge framework, invocation triggers an early pay-in or a direct movement under the dedicated ""Client Securities Margin Pledge Account"" mechanism rather than a standard DIS-based off-market transfer.

• Pledge release after loan closure: Once the LAS is fully repaid, the lender releases the lien through the depository. No off-market transfer is required; the shares simply return to free-balance status in the borrower's own demat account.

For LAS borrowers, the practical rule is simple: shares pledged for a Loan Against Securities cannot be moved by off-market transfer until the pledge is released by the lender.

• Off-market transfers are NOT exempt from income tax — the absence of Securities Transaction Tax (STT) does not mean the absence of capital gains tax. Tax treatment depends on the nature of the transfer.
• Key tax positions for off-market transfers in 2026:
• Off-market sale (with consideration): The transferor is liable for capital gains tax. Since STT is not paid, the concessional Section 112A and Section 111A rates (12.5% LTCG and 20% STCG under the Finance Act, 2024 regime) do NOT apply to listed equity sold off-market — instead, the gain is taxed under the normal long-term or short-term capital gains rules applicable to non-STT-paid securities.
• Gift to specified relatives: Off-market transfer as a gift to a ""relative"" as defined under Section 56(2) of the Income Tax Act, 1961 — spouse, parents, siblings, lineal ascendants/descendants — is exempt from tax in the hands of the recipient. The cost of acquisition for the recipient is the original cost of the donor.
• Gift to non-relatives: If the fair market value of shares gifted to a non-relative exceeds ₹50,000 in a financial year, the entire FMV is taxable as ""Income from Other Sources"" in the hands of the recipient.
• Transfer between own accounts: Not a ""transfer"" under Section 47 of the Income Tax Act; no capital gains arise. The original cost and holding period continue.
• Inheritance and transmission: Receipt by inheritance is exempt; the heir inherits the original cost of acquisition and the original holding period of the deceased.
• Given the complexity, off-market transfers with material value should be reviewed with a Chartered Accountant before execution.

Off-market transfer is the demat-to-demat movement of securities between two parties without routing through a stock exchange, executed via NSDL or CDSL using a Delivery Instruction Slip (DIS) and authenticated by depository OTP under the 1 January 2024 target-beneficiary regime. Common use cases include gifts, transfers between own accounts, inheritance, off-market sales, and pledge invocation under a Loan Against Securities. Charges include a 0.015% stamp duty on off-market sales (gifts and own-account transfers are typically exempt), DP transaction fees, and 18% GST, with no STT. Crucially, shares actively pledged for an LAS cannot be off-market transferred until the lender releases the lien. For any structured credit need against your equity, mutual fund, or bond holdings, consult Bajaj Finance for a Loan Against Securities — and review the off-market transfer tax position with a Chartered Accountant before initiating any material transfer.