Taxation in PMS: What Investors Must Know

A Simple Guide to Understanding How Taxes Work in Portfolio Management Services (PMS)

For High Net Worth Individuals (HNIs) investing through Portfolio Management Services (PMS), returns are often more promising than traditional mutual funds - but so are the responsibilities. One of the key areas that many investors find confusing is taxation. Unlike mutual funds, PMS investors are taxed directly since they own the underlying securities in their name.

In this article, we’ll break down how PMS taxation works, what you should plan for, and how to manage your tax liabilities smartly.

How is PMS Structured?

Unlike mutual funds where you hold units of a pooled portfolio, PMS invests directly in equities or other assets in your demat account. This means:

• You are the legal owner of the shares

• You are liable for direct tax implications on capital gains, dividends, and other earnings

Types of Taxes Applicable in PMS

1. Capital Gains Tax

Since you own stocks directly, capital gains taxes apply to each transaction the portfolio manager executes on your behalf.

Type of Gain	Holding Period	Tax Rate
Short-Term Capital Gains (STCG)	Held ≤ 12 months	15%
Long-Term Capital Gains (LTCG)	Held > 12 months	10% (above ₹1 lakh gains/year)

2. Dividend Taxation

Dividends received through your PMS are added to your income and taxed as per your income tax slab.

There is no separate DDT (Dividend Distribution Tax) anymore (since Budget 2020), so PMS clients in higher tax slabs (30%+) could face heavier dividend tax than mutual fund investors used to.

3. Securities Transaction Tax (STT)

STT is automatically deducted when your PMS provider buys/sells listed securities. This is reflected in your contract notes and doesn't need to be paid separately.

PMS vs Mutual Fund Taxation

Feature	PMS	Mutual Fund
Tax Filing	Done by investor	Done by AMC
Capital Gains	On every trade	On redemption
Loss Set-Off	Yes	Yes
Dividend Tax	Taxed at slab rate	Taxed at slab rate

How Xylem Investments Supports Tax Efficiency

At Xylem Investments, our Xylem Maverick PMS strategy is built not only for long-term capital growth but also for tax efficiency.

We aim to:

• Avoid unnecessary churn that triggers short-term taxes

• Use tax harvesting where appropriate

• Provide detailed and timely tax statements

📞 Final Thoughts: Plan Early, File Smart

PMS offers tremendous benefits to HNIs—but tax planning must go hand-in-hand with portfolio management. Work with a PMS provider that gives you transparent, easy-to-understand tax reports, and consult your tax advisor regularly.

👉 Talk to us to understand how our PMS strategy balances risk, returns, and taxation effectively.