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

For income-tax purposes, how is a Portfolio Management Services (PMS) client's investor in a discretionary PMS account generally treated with respect to the securities held in the portfolio?

The client is treated as the beneficial owner and is taxed directly on the portfolio's income and gains, because PMS securities are held in the client's own name. The portfolio manager only acts as an agent, so it does not pay tax on the client's gains.

  1. AThe portfolio manager is taxed as the owner of the securities
  2. BThe client is treated as the beneficial owner and is taxed on gains and income from the portfolioCorrect
  3. CThe custodian is taxed on the gains and passes on the post-tax amount
  4. DThe PMS account is taxed as a separate pooled trust at the portfolio manager's level

Explanation

In PMS, securities are held in the individual client's own demat account (through the custodian). The client is therefore the owner and is taxed on dividends, interest and capital gains. The portfolio manager acts only as an agent, so it is not taxed on the client's gains.

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