What is the Tax Treatment for PMS?

Last Updated: 23 Sep 2025

Portfolio Management Services (PMS) are increasingly seen as a refined way to enter the equity and debt markets of India. They allow you (as investors) to hand over capital to a professional manager who builds and maintains tailor-made portfolios. The attraction lies in the personalisation and professional touch. However, one area often overlooked is taxation.

In this aspect, here we’ve discussed how income from PMS is taxed, types of taxes under PMS and factors influencing PMS taxation.

What Are The Tax Rules For PMS?

Your PMS account is held in your name, implying that all transactions would be regarded as yours in terms of tax. There are two principal income streams, which are as follows:

• Capital Gains: In case equity shares are sold in less than 12 months, profits are considered as short-term capital gains (STCG) and are subject to taxation at 15%. For example, assume you had invested ₹10 lakh and your manager has sold at ₹11 lakh after six months, the gain of ₹1 lakh would attract ₹15,000 tax.

Subsequently, a gain exceeding ₹1 lakh in one year is subject to the tax of 10%. On ₹2.5 lakh of long-term gains, therefore, the tax payable is only ₹1.5 lakh and the resultant tax is ₹15,000.

• Dividend Income: Dividend is directly deposited in your account and taxed at your income slab. Suppose you are in the 5% slab and get a dividend of ₹1 lakh, then approximately ₹5,000 of that amount is taxed. There is no dividend distribution tax paid by the companies as in the past days, but the liability is on you.

PMS management and performance fees are also paid independently and they are subject to Goods and Services tax (GST).

What are the Different Types of Taxes under PMS?

When you apply for PMS, several taxes and levies apply. Some of them are as follows:

Aspects	Description
Capital Gains Tax	It follows a 12-month rule for STCG/LTCG classification for equities. Meanwhile, debt instruments follow a 36-month rule. Gains you make from debt held under three years are taxed at slab rates, while those held longer are taxed at 20% with indexation benefits.
Dividend Tax	The dividends you receive from companies in your PMS account are included in your total taxable income. They are charged at your income tax rate, with no separate or concessional charge.
Securities Transaction Tax (STT)	A direct tax levied on the worth of securities that are sold or purchased in stock exchanges. It applies to equity shares, equity mutual funds and derivatives. The rate is determined by the nature of a transaction and it is paid at the time of a trade.
Stamp Duty	It is a tax on securities transactions. It is calculated at a token percentage of the value of a trade and is paid for the investment.
GST on PMS Fees	18% GST is levied on the fees charged by the portfolio manager.

Factors Influencing PMS Taxation

The taxation rules affect you depending on a number of factors. Some of them are as follows:

• Portfolio Composition: Specifies the basis, either equity (low rates, exemption) or debt (slab rates or indexation), on which you are taxable.
• Turnover Frequency: Influences the share of your profit that is short-term versus long-term and the rate of tax you pay.
• Tax Slab: This has a direct effect on the amount that individuals pay on their dividends and short-term debt gains, with higher-income investors subjected to heavier taxation.
• Style of Manager: Determines the frequency of trades in your portfolio and thus the tax efficiency it achieves.
• Fees and GST: Add on a cost layer that cuts your net post-tax profit, whether there are gains or not.

Why Understanding PMS Taxation is Important?

Here are some key factors why you should know about PMS Taxation:

• True Return Clarity: Headline returns are confusing when you do not factor in tax. Even a PMS that reports high performance can provide small post-tax returns. The knowledge of the tax effect assists you in the assessment of real portfolio efficiency.
• Strategy-Alignment with Tax Profile: Tax-efficient strategies with the emphasis on long-term holding can be more beneficial to high-income investors.
• Combined Financial Planning: Taxation influences your PMS in terms of placing it into your overall financial objectives. Aligning the tax influence of your PMS with other assets leads to improved asset incorporation, cash flow management and long-term portfolio well-being.

Conclusion

The taxation of PMS investments is important in determining returns accurately and in making good financial plans. Tax regulations on capital gains, dividends, and fees will have a direct effect on your net gains and liquidity. Understanding the aspects, such as portfolio composition, turnover, and tax slabs, allows investors to pursue tax-efficient strategies. Finally, by including PMS taxation in your total financial strategy, you can maximise post-tax wealth, prevent any unforeseen liabilities, and make better investment choices to achieve long-term success.

Frequently Asked Questions

1. What Is PMS Taxation In India?

PMS taxation refers to how the investment income generated under Portfolio Management Services is taxed. Since all securities are held in your name, every gain or cost is treated as your personal income or expense.

2. Can I Claim PMS Fees As A Deduction Against My Capital Gains?

PMS management and performance fees cannot be deducted from your capital gains. Taxation rules treat these charges as service costs payable to the portfolio manager, not as expenses incurred for acquiring or transferring securities.

3. How are dividends from PMS holdings taxed?

The dividends are placed in your total income under Income from Other Sources. They are subject to your applicable income tax slab rates, such as 5%, 20% or 30%.

4. What Is The PMS Fee Structure?

There are two types of fees charged by Portfolio Management Services. The first is a management fee, calculated as a fixed percentage of assets under management. The second is a performance fee, which is paid as a percentage of profits made over a certain set benchmark or hurdle rate. The two kinds of fees are subject to 18% GST and these fees are not deductible from your taxable capital gains.