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

Under the Indian income tax framework as applied to PMS, how is a PMS client's portfolio of listed equity shares treated for the purpose of taxing gains on sale?

In a PMS the securities sit in the client's own demat account, so the client is the owner and pays tax on realised gains. The portfolio manager does not pay tax on client gains, and tax arises on sale of securities rather than on withdrawal.

  1. AThe PMS entity itself pays tax on gains and the client is exempt
  2. BGains are taxed in the hands of the client, as the securities are held in the client's own name under a discretionary or non-discretionary accountCorrect
  3. CGains are taxed only when the client withdraws money from the PMS
  4. DGains are exempt if the portfolio manager charges only a fixed fee

Explanation

In a PMS the securities are held in the individual client's own demat account, so the client is the owner and is taxed on realised gains. The portfolio manager is not taxed on the client's gains. Tax arises on sale, not on withdrawal of money, and the fee structure does not exempt gains.

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