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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 under a discretionary PMS, who is generally responsible for paying income tax on the gains arising from the portfolio's transactions?

The client pays the tax. In a PMS the securities are held for the client's benefit and the manager only acts as an agent, so gains, dividends and interest are taxed in the client's hands according to the client's own tax status.

  1. AThe portfolio manager, as it executes the trades
  2. BThe client, since securities are held for the client's benefit and gains are taxed in the client's handsCorrect
  3. CThe custodian, as it holds the securities
  4. DSEBI, through a collected levy

Explanation

A PMS is not a separate taxable entity. The portfolio manager acts as an agent, and the securities belong to the client. Gains and income are therefore assessed in the client's hands according to the client's status. The portfolio manager, custodian and SEBI are not liable for the client's tax.

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