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

For a client of a Portfolio Manager in India, how are the gains from the sale of securities in the client's portfolio treated for income-tax purposes?

The gains are taxed in the client's hands because the client is the beneficial owner of the securities in a PMS. The Portfolio Manager only manages the portfolio as an agent and is not the taxpayer on those gains.

  1. AThe Portfolio Manager is taxed on the gains as the owner of the securities
  2. BThe gains are taxed in the hands of the client, as the client is the beneficial owner of the securitiesCorrect
  3. CThe gains are exempt until the client closes the PMS account
  4. DThe gains are taxed only as business income of the Portfolio Manager's fund

Explanation

In a PMS, securities are held in the client's own name (or on the client's behalf), so the client is the beneficial owner. Capital gains or business income arising from the portfolio is therefore taxed in the client's hands. The Portfolio Manager acts only as an agent and is not taxed on these gains.

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