Skip to content

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

In the case of a PMS client, how is the portfolio manager generally treated for income-tax purposes with respect to the securities held in the client's discretionary portfolio?

The client is taxed. In a PMS the client is the beneficial owner of the securities and the portfolio manager acts only as an agent for a fee, so capital gains, dividends and interest are assessed in the client's hands, not the manager's.

  1. AThe portfolio manager is taxed on the gains as the owner of the securities
  2. BThe client is the beneficial owner, so gains and income are taxed in the client's handsCorrect
  3. CThe gains are taxed in the hands of SEBI as regulator
  4. DThe gains are exempt until the client closes the PMS account

Explanation

In a PMS the securities are held in the client's own name or on the client's behalf, so the client is the owner. The portfolio manager is only an agent acting for fees. Hence capital gains, dividends and interest are taxed in the client's hands, not in the manager's, and there is no exemption merely because the account stays open.

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