PMS Taxation in India: How PMS Gains Are Taxed (FY 2026-27)

PMS taxation in India works differently from mutual fund taxation because a Portfolio Management Service (PMS) holds shares in a demat account in your own name. Every time the manager sells a stock, the gain or loss is yours, in that tax year, even if you have not withdrawn a rupee. For tax year 2026-27, the first year under the Income-tax Act, 2025, listed shares held for 12 months or less are taxed at 20% and those held longer at 12.5% on gains above ₹1.25 lakh, plus surcharge and 4% cess. This guide is general information: confirm your own position with a chartered accountant.

Why a PMS is taxed differently from a mutual fund

A mutual fund pools money and issues you units. When the fund manager sells shares inside the scheme, the scheme books the gain, not you; you pay tax only when you redeem or switch units.

A PMS works the other way round. Regulation 24 of the SEBI (Portfolio Managers) Regulations, 2020 requires a portfolio manager to keep each client's securities segregated and bars it from holding them in its own name on the client's behalf. SEBI has notified new SEBI (Portfolio Managers) Regulations, 2026, which replace the 2020 Regulations from 1 April 2027 and carry over these rules on segregation, annual audit and reporting at least every three months. The shares sit in your demat account, so each purchase and sale is your own transaction. That single fact drives most of PMS tax in India. Our guide to what a PMS is and how it works covers the structure.

Turnover matters, because a strategy that churns its holdings books more short-term gains each year. And each security keeps its own purchase date and cost, so one year can bring short-term gains, long-term gains, losses and dividends together.

The 2025 Act uses a single "tax year" in place of the old previous year and assessment year. Tax year 2026-27 runs from 1 April 2026 to 31 March 2027, the same twelve months as FY 2026-27, so this guide uses the two labels interchangeably.

PMS capital gains tax on listed shares (FY 2026-27)

Under the 2025 Act, a share listed on a recognised Indian stock exchange is short term if held for 12 months or less and long term if held for more than 12 months. Where securities transaction tax (STT) has been paid, as on normal stock exchange trades, the FY 2026-27 rates are:

• Short-term gains: 20% under section 196 (section 111A of the 1961 Act).
• Long-term gains: 12.5% under section 198 (section 112A of the 1961 Act) on the amount above ₹1.25 lakh a year.

The ₹1.25 lakh is one allowance per person per year across your PMS, equity mutual funds and directly held shares, not one per account.

Surcharge and cess

For FY 2026-27, surcharge is 10% on total income above ₹50 lakh up to ₹1 crore, 15% above ₹1 crore up to ₹2 crore, 25% above ₹2 crore up to ₹5 crore and 37% above ₹5 crore under the old regime, with the new regime stopping at 25%. Under the Finance Act, 2026, surcharge on dividends and on gains taxed under sections 196, 197 and 198 is capped at 15%. A 4% cess applies on the tax plus surcharge. At the highest incomes, short-term equity gains therefore cost up to 23.92% and long-term gains up to 14.95%.

A worked example

Suppose a resident investor in the 30% slab has a PMS that, in tax year 2026-27, books ₹3 lakh of short-term gains, ₹4 lakh of long-term gains and ₹60,000 of dividends. Assume no other equity gains, no losses and no surcharge:

• Short-term gains: ₹3 lakh at 20% = ₹60,000
• Long-term gains: (₹4 lakh minus ₹1.25 lakh) at 12.5% = ₹34,375
• Dividends: ₹60,000 at 30% = ₹18,000
• Total: ₹1,12,375, plus 4% cess of ₹4,495 = ₹1,16,870

That tax is due for 2026-27 even if no money left the PMS. Inside an equity mutual fund (growth option), the same trades would create no tax for the investor until redemption.

Capital gains or business income

Most PMS investors report these gains as capital gains, but very frequent trading can invite the argument that the activity is a business. A CBDT circular of 29 February 2016, issued under the 1961 Act, says that if you choose to treat listed shares held for more than 12 months as capital assets, the Assessing Officer will not dispute it, but you must keep the same stand in later years. Settle the approach with your chartered accountant before the first return.

How dividends, interest and bonds in a PMS are taxed

Dividends

Dividends from shares in your PMS are taxed at your slab rate. Under section 393 of the 2025 Act, a company deducts 10% TDS from a resident individual's dividends once they exceed ₹10,000 in the tax year, or 20% if your PAN is missing or invalid under section 397. TDS is a credit against your final tax.

As enacted, section 93 of the 2025 Act allowed only one deduction against dividend income: interest on money borrowed to earn it, capped at 20% of the dividend. The Finance Act, 2026 removed even that, so for tax year 2026-27 nothing, including a PMS management fee, can be deducted from dividend income.

From tax year 2026-27, the Finance Act, 2026 treats a company's buyback of shares in your portfolio as a sale: the amount you receive over your cost is taxed as a capital gain, not the whole amount as dividend.

Bonds, debentures and debt funds

If your PMS holds bonds, the interest is taxed at your slab rate. Listed bonds held for more than 12 months are taxed at 12.5% on the gain when sold, and at your slab rate if held for 12 months or less. Section 76 of the 2025 Act treats gains on unlisted bonds and debentures (transferred or redeemed on or after 23 July 2024), market-linked debentures and debt-oriented mutual fund units bought on or after 1 April 2023 as short term whatever the holding period, so slab rates apply.

PMS advance tax: gains cannot wait until March

For residents, the portfolio manager does not deduct tax on capital gains: paying it is your job. If the tax you owe for the year, after TDS, comes to ₹10,000 or more, the 2025 Act requires advance tax in four instalments: at least 15% by 15 June, 45% by 15 September, 75% by 15 December and 100% by 15 March. A resident individual aged 60 or more with no business or professional income is exempt from advance tax under section 403.

Because PMS gains are hard to forecast, section 425 of the 2025 Act charges no interest on a shortfall caused by capital gains or dividends you could not estimate, provided you pay the tax on them in the remaining instalments or by 31 March. In practice, ask your manager for a realised gains report before each instalment date. Non-resident investors are handled differently: tax is generally deducted at source when gains are realised.

PMS fees: tax deductible or not

This is the most contested point in PMS taxation. Section 72 of the 2025 Act, like section 48 before it, allows only two deductions from the sale price: the cost of acquiring (and any cost of improving) the asset, and expenditure incurred wholly and exclusively in connection with the transfer. STT is expressly not deductible.

The Income Tax Appellate Tribunal has split on whether a PMS fee fits:

• Against: a 2011 Mumbai bench held that a fee charged on portfolio value is payable whether or not any share is sold, so it is not tied to any sale. Several later Mumbai rulings followed it.
• For: Pune and Delhi benches, and some Mumbai benches, including one reported in September 2026, have allowed PMS fees as an expense of earning the gains.

When one of the rulings allowing the fee went to the Bombay High Court, the appeal was admitted only on whether the gains were capital gains or business income, so the fee question remains unsettled. The conservative view is to deduct brokerage and exchange charges tied to specific purchases and sales (but not STT), and to treat management and performance fees, and the 18% GST on them, as not deductible. Your chartered accountant should claim them only knowing the claim may be challenged. For how the fees themselves are charged, see PMS fees explained: fixed, performance and hybrid.

Set-off and carry-forward of losses

PMS losses are your own capital losses, so they can be set against gains elsewhere in your return, such as mutual fund redemptions:

• A short-term capital loss can be set off against short-term or long-term gains.
• A long-term capital loss can be set off only against long-term gains.
• A capital loss cannot be set off against salary, interest or any other head of income (section 109).
• Unabsorbed capital losses carry forward for eight tax years (section 111), but only if you file your return by the due date.

The PMS tax statements your manager issues

Between SEBI's portfolio manager regulations and market practice, you receive:

• Periodic report: at least once every three months under Regulation 31 of the 2020 Regulations (Regulation 24 of the 2026 Regulations from 1 April 2027), and monthly with many managers. It shows holdings, every purchase and sale, dividends and interest received, expenses and any commission paid to your distributor.
• Capital gains statement: after the year ends, a scrip-wise statement of realised gains and losses, with purchase dates and costs.
• Audited statement: Regulation 30 (Regulation 23 from 1 April 2027) requires your portfolio account to be audited every year by an independent chartered accountant, with a copy of the certificate given to you. You may also appoint your own chartered accountant to audit it.
• Closing statement: a detailed statement of accounts when the agreement ends.

How a chartered accountant uses them

Your chartered accountant ties the capital gains statement to the transaction list and the audited statement, reports the gains in your return, and matches dividends, interest and TDS against your Annual Information Statement (AIS). PMS gains are combined with your mutual fund and direct share gains so the ₹1.25 lakh allowance is applied once, losses brought forward are set off and new ones recorded, the fee statement settles what, if anything, is deducted, and interim realised gains reports feed the advance tax instalments.

PMS vs mutual fund tax: side by side

A low-turnover PMS that holds most stocks beyond 12 months pays capital gains tax at the same rates as a mutual fund held as long, although its dividends are still taxed at your slab rate every year and its fees are not clearly deductible, while a high-turnover strategy pays tax sooner and more of it at the short-term rate. Our mutual fund vs PMS vs AIF comparison sets tax alongside minimums, liquidity and fees.

How Sanriya helps with a PMS

Sanriya Finvest Pvt. Ltd., Pune, is an APMI-registered PMS distributor (APRN01056) and an AMFI-registered mutual fund distributor (ARN-193359). We explain how a PMS works and how it is taxed, handle the account opening paperwork and service the account afterwards, including getting the statements your chartered accountant needs. We are a distributor, paid commission by the product manufacturer rather than a fee by you, and not a tax practitioner; the decision to invest stays with you. See our PMS page or contact us to talk it through.