How the shares ended up in the fund
The transfer to the fund is automatic and time-driven. Under Section 124 of the Companies Act 2013, a dividend that remains unclaimed for seven consecutive years is moved, with the interest on it, to the Investor Education and Protection Fund, and the shares on which that dividend went unclaimed for the same seven years are transferred to the fund as well. For an NRI who was abroad and simply did not cash dividend warrants, this is exactly how a long-held shareholding quietly leaves your name.
The one thing that stops it is any activity: if even a single dividend in that seven-year span was paid or claimed, the shares are not transferred. But once the full seven years pass with nothing claimed, both the dividends and the shares sit with the fund. Crucially, Section 125 preserves your right to claim them back, so this is a recovery process, not a loss.
Reclaiming with Form IEPF-5
The route back is a defined one. You file Form IEPF-5 online with the IEPF Authority, then send the printed form along with an indemnity bond, the original certificates or the transaction statement, and your identity documents to the company's nodal officer for the fund. The company verifies your claim and files its report, and the IEPF Authority then releases the shares back into your demat account and the dividend to your bank.
An NRI claims in the same way, and where the holder has died, the legal heir claims with the succession documents. The paperwork is exacting, the indemnity bond, the verification, the matching of old holdings, which is where claims stall, and where a practising CA and the process being run correctly from the Indian side makes the difference between a claim that goes through and one that sits unanswered.
The tax: only when you later sell
Getting your shares back from the fund is not a taxable event. You are recovering an asset that was always yours, so there is no capital gain or income on the reclaim itself. The tax question arises only if and when you sell the recovered shares.
On that later sale, the shares carry their original cost, so the usual protections apply, the 1 April 2001 value for very old shares and the 31 January 2018 grandfathering for listed equity, which usually keep the taxable gain small. As a non-resident, the buyer side deducts TDS under Section 195, and long-term gains are taxed at 12.5% above the ₹1.25 lakh exemption. So the reclaim restores the asset tax-free, and only a subsequent sale brings the ordinary NRI share-sale tax into play, which a CA computes with the old cost figures.