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

In the case of a PMS client who invests directly in listed equity shares through a discretionary portfolio manager, in whose hands are the capital gains from the portfolio taxed?

The client is taxed on capital gains from a PMS portfolio, because the client is the beneficial owner of the securities. The portfolio manager only acts as an agent making investment decisions, and the custodian merely holds the securities, so neither is the taxpayer on those gains.

  1. AThe portfolio manager, as it takes the investment decisions
  2. BThe client, as the beneficial owner of the securitiesCorrect
  3. CThe custodian holding the securities
  4. DSEBI, through a pooled tax mechanism

Explanation

In a PMS the securities are held in the client's own name or for the client's benefit. The client is therefore the owner and the capital gains are taxed in the client's hands. The portfolio manager only acts as an agent and does not become the taxpayer on those gains.

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