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

Which of the following best describes how management fees paid by a client to a PMS portfolio manager are generally treated for an individual investor not carrying on a business in securities?

For an investor holding securities as investments, only expenses wholly and exclusively connected with the transfer, such as brokerage on sale, reduce capital gains. General PMS management fees are not treated as a transfer expense and cannot be set off against salary income.

  1. AFully deductible against salary income
  2. BNot deductible from capital gains computation as an expense of transfer unless directly connected with the transfer, so brokerage on the sale is the typically allowed itemCorrect
  3. CDeductible as a rebate under Section 87A
  4. DAdded to the cost of the shares automatically in all cases

Explanation

For capital gains, only expenditure incurred wholly and exclusively in connection with the transfer, such as brokerage on sale, is deductible. General portfolio management fees are not treated as a transfer expense for an investor holding securities as investments. They are not deductible against salary, and rebate under Section 87A is unrelated.

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