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

A PMS client's portfolio holds listed equity shares that are sold after 8 months at a profit. How is this profit generally classified for capital gains purposes?

The profit is a short-term capital gain. Listed equity shares are treated as short term when held for 12 months or less, and the shares here were held for only 8 months before being sold, so the long-term classification does not apply.

  1. ALong-term capital gain, because PMS holdings are always long term
  2. BShort-term capital gain, because listed equity held for 12 months or less is short termCorrect
  3. CBusiness income, because the manager trades frequently
  4. DExempt income, because the shares are listed

Explanation

Listed equity shares held for 12 months or less are short-term assets. An 8-month holding is below that threshold, so the profit is a short-term capital gain. The 'always long term' option ignores the holding period test.

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