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

A PMS client sells listed equity shares from the portfolio after holding them for 8 months, and the shares were bought and sold on a recognised exchange with STT paid. Under the current Indian tax rules as generally taught, how is the gain classified?

The gain is a short-term capital gain. Listed equity shares become long term only when held for more than 12 months, and 8 months is below that threshold. Payment of STT does not exempt the gain, and professional management does not turn it into business income.

  1. ALong-term capital gain, because listed shares are always long term
  2. BShort-term capital gain, because the holding period is 12 months or lessCorrect
  3. CBusiness income, because the portfolio is managed professionally
  4. DExempt income, because STT has been paid

Explanation

For listed equity shares the long-term threshold is more than 12 months. A holding of 8 months is within that limit, so the gain is short-term capital gain. STT payment does not make it exempt, and management by a portfolio manager does not change the character of the gain.

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