How is PMS Taxation for NRIs Different?
The Portfolio Management Service taxation for NRIs differs from that of Indian citizens in terms of TDS requirements and DTAA reliefs.
- The NRIs are required to pay a TDS on the capital gains generated from the PMS.
- An NRI can also claim the Double Tax Avoidance Agreement (DTAA) benefits if their country of residence has a DTAA agreement with India.
- The DTAA helps reduce your tax burden.
PMS Tax Rates for NRIs for 2026-27
The PMS tax rates for NRIs have been updated for the latest financial year.
- Your tax treatment depends on what's held, be it listed equity, unlisted equity, or debt.
- The taxation also depends on the holding period since STCG and LTCG are applicable.
Let’s understand the PMS tax rates for NRIs for different types of holdings:
Listed Equity
| Holding Period |
Tax Type |
Tax Rate |
| Up to 12 months |
Short Term Capital Gains |
20% + surcharge and cess |
| More than 12 months |
Long Term Capital Gains |
12.5% on gains above ₹1.25 lakh/year |
Unlisted Equity and Debt/Bonds
- Gains on unlisted bonds or debt instruments held for less than 36 months are taxed at your applicable income tax slab rate.
- The gains held beyond the 36-month period may qualify for long-term treatment, although slab-rate taxation is common for debt instruments after recent rule changes.
Because these rules vary by type of instrument, it's important to confirm the exact classification with your PMS provider or a tax advisor.
Dividend Income
Dividends from PMS holdings are taxed at your applicable income tax slab, with TDS typically deducted at 20% before the amount reaches your account (subject to any lower DTAA rate you've claimed in advance).
Tax Rate Comparison: Before vs After Budget 2024
The Indian Budget 2024 revised capital gains rates effective on July 23, 2024.
The table below gives a before-and-after picture of tax rates:
| Tax Type |
Before 23 July, 2024 |
After 23 July, 2024 |
| STCG on Listed Equity |
15% |
20% |
| LTCG on Listed Equity |
10% above ₹1 lakh/year |
12.5% above ₹1.25 lakh/year |
TDS on PMS Income for NRIs
For NRIs investing in Portfolio Management Service, a TDS is deducted at the source. Your PMS provider deducts a TDS on capital gains and dividends before your credit reaches your NRE or NRO account.
- If your country of residence has a DTAA with India, you may be eligible for a lower TDS rate.
- In case you are charged a higher TDS, you can claim the amount while filing your Indian Income Tax.
- The issue of higher TDS can arise due to a discrepancy or late submission of DTAA paperwork (if applicable).
How is the PMS Tax calculated for NRIs?
Let’s understand PMS taxation for NRIs using a simple example. Suppose you invest ₹50 lakh in PMS and 14 months later, your PMS manager sells the listed equity shares for ₹14 lakh, which were originally worth ₹10 lakh when you invested.
- You will be subject to Long Term Capital Gain of 12.5% on your gains of ₹4 lakh.
- Since there is no LTCG up to ₹1.25 lakh, your actual taxable portion is ₹2.75 lakh.
- So 12.5% of ₹2.75 lakh, which is roughly ₹34,375, will be deducted as TDS by your PMS provider.
If the same shares had been sold within 12 months instead, the entire ₹4 lakh gain would be taxed at 20% as STCG plus surcharge and cess as applicable.
How to Claim DTAA Benefits
India has a Double Tax Avoidance Agreement with more than 90 countries. If your country is one of them, you can be eligible for lower tax rates on your PMS gains.
You can claim the benefits of DTAA as an NRI by following the steps given below:
- Fill Form 10F: It is a self-declaration required under Indian tax rules and can be submitted to your PMS provider before every financial year ends.
- Tax Residency Certificate: It is issued by the tax authority of your country of residence.
NRE vs NRO Account: Know How it Affects Taxation
Before investing in PMS, you will need to open an NRI bank account, such as NRE or NRO.
In case you are investing in equity in PMS, you are also required to open a Portfolio Investment Scheme account linked to your NRI account.
It is important to understand what type of NRI account you should choose for PMS investment, as it affects the total tax you pay.
| Account Type |
Interest Income |
Repatriation Limits |
| NRE |
Tax exempt |
Fully repatriable |
| NRO |
Taxable |
Restrictions apply |
- As shown in the comparison above, choosing an NRE account is a better option for NRIs to invest in PMS.
- It helps in saving your hard-earned profits.
- It is also important to note that only interest earned is tax-exempt in an NRE account; capital gains and dividends are still taxable under relevant laws.
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