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

For a PMS client in the discretionary portfolio management category, how are the gains from selling listed equity shares at a profit treated for income-tax purposes?

Gains are taxed in the client's hands as capital gains, because in a PMS the securities are held in the client's own demat account. The portfolio manager only manages them as an agent, and the distributor earns only commission, so neither is taxed on the client's gains.

  1. AAs capital gains in the client's hands, because the securities are held in the client's own nameCorrect
  2. BAs capital gains in the portfolio manager's hands, because the manager takes the decisions
  3. CAs income of the PMS distributor, because the distributor sourced the client
  4. DAs exempt income, because PMS investments are outside the Income-tax Act

Explanation

In a PMS the securities are held in the client's own name (a separate account per client), so the client is the owner and the gains are taxed in the client's hands. The portfolio manager acts only as an agent and does not own the gains. The distributor earns only commission.

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