Skip to content

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

How are the gains and losses of a PMS client generally taxed when the portfolio manager buys and sells securities on the client's behalf in the client's own demat account?

The client is taxed directly on each transaction, because securities are held in the client's own account. Gains are treated as short-term or long-term capital gains, or as business income depending on the client's circumstances, rather than being taxed in the PMS entity.

  1. AThe PMS entity pays tax on the client's gains at a flat corporate rate and the client pays nothing
  2. BGains are taxed in the hands of the client, security by security, as capital gains or business income depending on the client's circumstancesCorrect
  3. CGains are exempt until the client redeems the entire portfolio
  4. DOnly dividends are taxable and capital gains are ignored

Explanation

A PMS is not a pass-through pooled vehicle like a fund; each client holds securities directly. Hence every sale generates a capital gain or loss for the client, which is taxed according to the holding period and the client's status, or as business income if the client is a trader. Tax is not paid by the PMS entity on the client's behalf.

Did you get it right without looking?

One question tells you little. A timed set on Taxation (NISM XXI-A) shows your real accuracy, how long you take and where you lose marks.

Practise Taxation (NISM XXI-A)Free diagnostic mock

More Taxation (NISM XXI-A) questions