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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Taxation (NISM XXI-A)

A PMS client pays portfolio management fees to the manager. How are these fees generally treated for a client who holds the portfolio as an investment?

Management fees are generally not deductible against capital gains for an investor. The computation permits only the cost of acquisition, improvement and expenses wholly connected with the transfer, such as brokerage, not general portfolio management fees.

  1. AAlways deductible against salary income
  2. BNot allowed as a deduction against capital gains except for expenditure wholly connected with transfer, so fees are generally not deductible against capital gainsCorrect
  3. CFully deductible against capital gains
  4. DDeductible only against interest on tax-free bonds

Explanation

Capital gains computation allows only expenditure incurred wholly and exclusively in connection with the transfer, such as brokerage, and cost of acquisition and improvement. General management or advisory fees for an investor are not part of this. Hence they are generally not deducted from capital gains, so option C is wrong.

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