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

For a discretionary PMS client, how is the income arising from the portfolio's securities transactions generally taxed in the hands of the investor?

The income is taxed in the client's hands, because the client is the beneficial owner of the securities in a PMS account. The portfolio manager merely manages the assets, so gains, dividends and interest are assessed to the investor under the normal provisions.

  1. AThe portfolio manager pays tax on the client's behalf and the client has no tax liability
  2. BThe income is taxed in the client's hands, as the client is the beneficial owner of the securitiesCorrect
  3. CThe income is taxed only when the client closes the PMS account
  4. DThe income is exempt because the portfolio is managed by a SEBI-registered entity

Explanation

In PMS the securities are held in the client's own name (or beneficially for the client), so the client is the owner. Gains, dividends and interest are therefore taxed in the client's hands under the usual heads. The manager does not pay tax on the client's behalf.

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