NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Taxation (NISM XXI-A)
A PMS client's account shows a pre-tax return of 14% for the year. If the entire return were short-term gain taxed at a flat 20%, what would be the post-tax return, ignoring fees and other charges?
The post-tax return is 11.2%. Tax at 20% on a 14% return is 2.8 percentage points, and subtracting it leaves 11.2%. Equivalently, multiply 14% by 0.80. The figure of 2.8% is only the tax, not the return after tax.
- A11.2%Correct
- B12.0%
- C2.8%
- D16.8%
Explanation
Tax is 20% of 14%, which is 2.8%. Post-tax return is 14% - 2.8% = 11.2%. Check: 14% x 0.80 = 11.2%. The option of 2.8% is only the tax amount, and 16.8% wrongly adds the tax.
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