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

A PMS client's portfolio manager charges a management fee of Rs 1,20,000 and a performance fee of Rs 80,000 for the year. A portfolio had a pre-fee gain of Rs 9,00,000, treated wholly as long-term capital gain. If the client is not eligible to deduct the fees against capital gains, what is the taxable long-term gain before any exemption or rate considerations?

The taxable long-term gain is Rs 9,00,000. The fees are stated to be non-deductible against capital gains, so nothing is subtracted from the pre-fee gain. Subtracting either or both fees would understate the gain and give a wrong figure.

  1. ARs 9,00,000Correct
  2. BRs 7,00,000
  3. CRs 7,80,000
  4. DRs 8,20,000

Explanation

Expenses that are not incurred wholly and exclusively in connection with the transfer are not deductible from capital gains, and the question states the fees are not deductible. The taxable gain therefore stays at Rs 9,00,000. Deducting both fees gives Rs 7,00,000, deducting only the management fee gives Rs 7,80,000, and deducting only the performance fee gives Rs 8,20,000, all of which are wrong here.

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