Taxation report
Also written Tax report
The periodic statement a portfolio manager must give every PMS client under Regulation 30, covering capital gains, derivatives income, dividends, interest and fees so the client can work out tax due.
In plain language
A PMS client's own tax return is not the portfolio manager's job. Getting the client the numbers needed to file it is. That document is the taxation report.
Under the SEBI (Portfolio Managers) Regulations, 2020, a portfolio manager must give every client periodic reports built for tax filing, not just performance. The workbook is clear about why a separate document exists at all: a portfolio manager reports its performance before tax, because that lets clients in different tax brackets compare results on the same footing. But it is the after-tax money a client actually keeps. The taxation report is what lets a client, or their adviser, turn one number into the other.
One report, several income types. A PMS client's year can mix capital gains, F&O trading gains taxed as business income, dividends and interest, each taxed differently. The taxation report gathers all of them into a single, dated statement.
How it works
Regulatory basis (Chapter 11, section 11.4.1, per Regulation 30 of the SEBI (Portfolio Managers) Regulations, 2020). A portfolio manager must disclose transaction, fee and income details, and give investors audited account statements and periodic reports covering realised and unrealised gains, tax liabilities and expenses.
What the report must contain (section 11.4.2), five components:
| Component | What it shows |
|---|---|
| Capital gains summary | LTCG and STCG on equity and debt, split out separately |
| Income from derivatives | F&O gains/losses as business income under PGBP, with the carry-forward position |
| Dividend income | Taxable at slab rates, after TDS for NRIs |
| Interest income | Reported separately from dividends; also taxed at slab rates |
| Expense and fee deduction details | States that management fee, performance fee, brokerage, STT and GST are not tax-deductible for individuals, and shows taxable income after these expenses |
Timelines (section 11.4.3). A quarterly report goes out within 30 days of each quarter, covering realised and unrealised gains. An annual report follows at year end, for income tax return filing. Form 16A, the TDS certificate for dividend and interest income, is issued alongside these but carries no separate deadline of its own in the workbook.
The workbook states these five components and two report frequencies; it gives no fixed template or page format for the report itself.
A worked example
Mrs. Chawla's discretionary PMS mandate, worth ₹90,00,000 at the start of the year, produces a mixed set of income and gains. Her March-quarter taxation report, issued within the 30-day window the workbook prescribes, shows:
| Line | Amount | Tax treatment shown on the report |
|---|---|---|
| Equity LTCG | ₹4,20,000 | 12.5% above ₹1.25 lakh exemption |
| Equity STCG | ₹1,10,000 | Flat 20% |
| F&O trading loss | −₹1,50,000 | Business loss under PGBP; carried forward, not set off against her salary |
| Dividend income | ₹85,000 | Slab rate, TDS already deducted |
| Interest on idle cash | ₹30,000 | Slab rate, reported separately from dividends |
| Fees paid (management + performance) | ₹1,40,000 | Shown, but not tax-deductible against her capital gains |
At the end of the financial year, an annual report consolidates all four quarters into one statement, and her portfolio manager separately issues a Form 16A for the TDS already deducted on her dividend and interest income. Mrs. Chawla's chartered accountant uses these documents, not the portfolio manager's own quarterly performance commentary, to file her return.
Why NISM asks about it
Chapter 11 (Taxation), section 11.4 (Tax Reporting and Compliance), sets out the Regulation 30 requirement, the report's five components, and the quarterly/annual timelines across its four subsections. Expect a recall question on what a taxation report must contain, and a question distinguishing it from Form 16A, which is one item inside it rather than the whole report.
Common exam traps
- The taxation report is the whole periodic statement; Form 16A is only the TDS certificate inside it, covering dividend and interest income specifically.
- Fees are shown on the report but are not deductible for an individual reporting PMS income as capital gains — showing an expense is not the same as it reducing tax.
- A PMS client's performance is reported pre-tax; the taxation report is what supplies the numbers to convert it to post-tax, see Post-tax return. The portfolio manager does not do that conversion for the client.
- F&O gains and losses appear on the report as business income, not capital gains, which is why they follow separate set-off and carry-forward rules from the equity and debt lines on the same page.
Where this is taught
Free preparation for NISM Series XXI-ARelated terms
- Income from other sourcesThe head of income under which interest and dividends earned in a PMS are taxed, at the investor's slab rate — with no indexation or capital gains benefit.
- Post-tax returnReturn after taxes on investment income and realised capital gains: pre-tax return × (1 − tax rate). It is what matters to the investor, but performance is communicated pre-tax.
- Carry forward of lossesUsing a loss not absorbed in the current year against income of later years. For F&O losses in PMS: up to 8 assessment years, and only against business income.
- Form 16AThe TDS certificate a portfolio manager issues for tax deducted at source on a client's dividend and interest income, part of the regular tax reporting a PMS provider must give investors.
- PGBPThe Income Tax Act head under which futures and options income earned through a PMS is taxed as business income, not as capital gains, regardless of whether the investor is resident or NRI.