PMS & AIF taxes — with a worked example.
Tax decides how much of a return actually reaches you. Here is exactly how capital-gains tax is worked out on a ₹1 crore portfolio, why holding period matters so much, and how AIF taxation differs by category.
Every sale is your tax event.
Because PMS shares sit in your own demat, there is no fund wrapper to defer anything — every sale the manager makes is taxed in your hands, in the year it happens, whether or not you withdraw a rupee. Rates current to FY 2025-26 (for sales from 23 July 2024; STCG was 15% before that): 20% short-term, 12.5% long-term above the ₹1.25 lakh annual exemption, plus 4% cess.
A ₹1 crore year, taxed line by line.
Say the manager books ₹5 lakh of short-term gains and ₹8 lakh of long-term gains in one year. Only ₹6.75 lakh of the long-term gain is taxable — the first ₹1.25 lakh is exempt. Here is the full bill.
| Line | How it's worked | Tax |
|---|---|---|
| Short-term gains (STCG) | ₹5,00,000 held ≤ 12 months · 20% | −₹1,00,000 |
| Long-term gains (LTCG) | ₹8,00,000 − ₹1.25 L exemption = ₹6,75,000 · 12.5% | −₹84,375 |
| Subtotal | On ₹13,00,000 of booked gains | ₹1,84,375 |
| Health & education cess | 4% of the tax | −₹7,375 |
| Total tax for the year | ≈ 14.8% effective on ₹13 L of gains | ₹1,91,750 |
The liability lands whether or not you withdraw. Surcharge may apply at higher incomes. Rates apply to sales from 23 July 2024 onward.
Same gains. ₹1.18 lakh apart.
The identical ₹13 lakh of booked gains attracts very different tax depending purely on how long positions were held. A high-churn strategy carries a hidden tax cost — when you compare managers, turnover matters as much as the headline return.
| Scenario | Rate | Tax (incl. cess) |
|---|---|---|
| All short-term (held ≤ 12 m) | 20% | ₹2,70,400 |
| Mixed — ₹5 L short + ₹8 L long | 20% / 12.5% | ₹1,91,750 |
| All long-term (held > 12 m) | 12.5% over ₹1.25 L | ₹1,52,750 |
AIFs: the category decides who pays.
Category I & II — pass-through
The fund itself isn't taxed on most income; gains flow through and are taxed in your hands, much like PMS. You file on what the fund reports to you.
Category III — fund level
Long-short and listed-strategy AIFs are taxed inside the fund. Distributions usually reach you net of tax — simpler filings, less control over timing.
GIFT City — concessional
IFSC funds operate under a separate concessional regime for NRIs and eligible investors. See the NRI hub for the full treatment.
Three things to settle on tax.
- Ask for the strategy's recent portfolio-turnover figures — higher churn usually means more short-term tax
- Expect an annual capital-gains statement from the manager — keep it for your filings
- Your residency, income slab and other gains change the final number — confirm with your CA
PMS & AIF tax, answered.
How is a PMS taxed?
You own the shares directly, so every sale the manager makes is a taxable event in your hands: 20% on listed-equity gains held ≤ 12 months, 12.5% beyond 12 months on gains above the ₹1.25 lakh annual exemption — plus 4% cess and any surcharge. The tax accrues even in years you withdraw nothing.
Why does portfolio churn affect my tax?
Because every sale crystallises a gain. A high-churn PMS books more short-term gains at 20%; a patient one holds past 12 months and pays 12.5%. On the same ₹13 lakh of gains, that's a swing of roughly ₹1.18 lakh in tax — purely from holding period.
How are AIFs taxed differently from PMS?
Category I & II AIFs are pass-through — the income is taxed in your hands, much like PMS. Category III AIFs are taxed at the fund level, so distributions usually reach you net of tax. GIFT City (IFSC) funds sit under a separate concessional regime again.
Keep reading.
Weigh fees and tax together — then confirm with your CA.
Illustrative, not tax advice. Figures are current to FY 2025-26 and may change; your residency, slab and other gains decide the final number — verify with a qualified adviser. PMS, AIF & GIFT City investments are subject to market risks.