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

Which statement about the portfolio manager's management fee and the investor's tax position is most accurate?

Deductibility of PMS fees depends on the head of income and the tax provisions applicable to the investor; fees are not automatically added to the cost of acquisition. Distributors should advise clients to consult a tax professional for their specific position.

  1. AFees paid are always deducted from the investor's capital gains as cost of acquisition
  2. BWhether fees can be claimed as a deduction depends on the head of income and tax provisions applicable; they are not simply added to the cost of sharesCorrect
  3. CFees are always fully exempt from tax
  4. DFees are borne by the portfolio manager and cannot be charged to the client

Explanation

Treatment of PMS fees depends on the applicable law and the nature of the client's income. They are not automatically added to the cost of acquisition. Fees are legitimately charged to clients under the PMS agreement, so the other statements are wrong.

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