India continues to attract Non-Resident Indians (NRIs) looking to participate in its equity markets, diversify their portfolios, and build long-term wealth. Portfolio Management Services (PMS) offer a professionally managed investment route, but PMS taxation for NRI investors requires careful planning because tax deduction, capital gains classification, treaty relief, and international fund transfers involve different rules.
Unlike a mutual fund, where investors generally own units of a pooled scheme, a conventional discretionary PMS typically holds securities in the investor's own account. Consequently, each purchase, sale, dividend, and other taxable event may need to be evaluated individually. This makes PMS taxation for NRI investors particularly important when assessing post-tax returns.
Three questions should guide every NRI before investing:
- How much tax can be deducted in India, and at what rate?
- Can a Double Taxation Avoidance Agreement (DTAA) reduce the tax burden?
- How can the remaining proceeds be transferred abroad compliantly?
Understanding PMS taxation for NRI investors is not simply about identifying a TDS percentage. It involves distinguishing tax deducted at source from final tax liability and understanding the interaction between Indian tax law, treaty provisions, banking procedures, and FEMA regulations.
This guide explains the key considerations for PMS for NRI investors, including documentation, repatriation, tax returns, and practical compliance.
How Is PMS Taxed Differently for an NRI?
The principal distinction in PMS taxation for NRI investors is that Indian tax liability depends on the nature of the income, the applicable provisions of Indian tax law, and any available treaty relief.
An NRI investing through a conventional PMS generally owns the underlying securities. Tax treatment therefore depends on the actual transactions rather than simply the overall increase in portfolio value.
Typical income categories include:
- Short-term capital gains: Gains from selling securities held for a relatively short period, classified according to the applicable rules.
- Long-term capital gains: Gains from securities held beyond the relevant statutory holding period.
- Dividend income: Generally taxable under the applicable provisions, subject to any available treaty relief.
- Interest and other income: Tax treatment depends on the underlying instrument and the nature of the receipt.
For eligible listed equity shares and equity-oriented instruments, special capital gains provisions may apply when the prescribed conditions, including securities transaction tax (STT) requirements where relevant, are satisfied. Other securities can have different holding periods and rates.
For transfers on or after 23 July 2024, the commonly applicable Indian domestic rates for qualifying listed equity gains under sections 111A and 112A of the Income-tax Act, 1961, were 20% for short-term gains and 12.5% for eligible long-term gains above the ₹1.25 lakh annual threshold, respectively, subject to statutory conditions. These rates should not be applied indiscriminately to every PMS asset or transaction.
Important for 2026–27: The Income-tax Act, 2025, came into effect on 1 April 2026. Investors should verify the corresponding provisions and applicable rules for the relevant tax year rather than assuming that every old section reference remains current.
For PMS taxation for NRI planning, the critical point is that an increase in portfolio value is not automatically taxable merely because it appears in a statement. Realised transactions and other taxable receipts must be assessed under the relevant rules.
Read more: PMS taxation in India
What TDS Rate Applies to an NRI PMS Account?
The question of tds on PMS for nri accounts has no single universal answer. The withholding treatment depends on the type of income, the applicable domestic provision, the relevant tax year, and any valid DTAA relief.
Under the Income-tax Act, 1961, section 195 generally governed withholding on payments to non-residents that were chargeable to Indian tax. The applicable withholding rate depended on the character of the income and relevant statutory provisions.
A practical distinction is essential:
| Income category | What determines the tax treatment? |
| Eligible short-term equity capital gains | Applicable special capital gains provisions and treaty terms |
| Eligible long-term equity capital gains | Applicable long-term capital gains provisions, thresholds and treaty terms |
| Dividends | Domestic dividend tax rules and any applicable treaty rate |
| Interest income | Instrument-specific domestic provisions and treaty terms |
| Other receipts | The legal character and taxability of the payment |
In some cases, withholding can reflect a rate higher than the investor's ultimate effective tax liability. In others, the correct withholding rate may be influenced by treaty eligibility or a certificate issued by the tax authorities.
This is why PMS tax for nri investors should be evaluated transaction by transaction, not by applying one flat percentage to the portfolio's total profit.
The final computation may also include applicable surcharge and cess, where relevant. The investor's PAN, documentation, and the nature of the income can affect compliance and withholding.
For PMS taxation for NRI investors, the most reliable approach is to request a written tax and withholding methodology from the portfolio manager or tax adviser before funding the account.
Who Deducts the Tax — the Portfolio Manager or Your Bank?
Understanding the payer's role is a crucial part of PMS taxation for NRI investors.
In a conventional PMS arrangement, the portfolio manager makes investment decisions and executes transactions on the client's behalf. The manager may also provide transaction statements, capital gains reports, and tax-related information. However, responsibility for withholding depends on the legal nature of the payment, the applicable provisions, and the entity making or crediting that payment.
A bank handling the PMS account is not automatically responsible for deducting tax on every underlying securities transaction merely because it operates the linked account.
The roles can differ:
- Portfolio manager: Executes transactions, maintains portfolio records, and provides relevant tax information. Any withholding obligation depends on the specific payment and legal arrangement.
- Broker or other payer: May have withholding responsibilities where the applicable law requires them.
- Bank: Processes eligible receipts and outward remittances and checks banking documentation. It may have specific tax obligations for particular payments, but ordinary account operation does not automatically make it the deductor for every PMS gain.
- Investor: Reviews tax statements, checks credits, files returns where required, and retains supporting documents.
Under the former section 195 framework, withholding applied to sums chargeable to tax when paid or credited to a non-resident, subject to the relevant exceptions and procedures. For payments governed by the law effective from 1 April 2026, the corresponding provisions of the Income-tax Act, 2025, must be checked.
For PMS taxation for NRI, ask the PMS provider to explain exactly who deducts tax, who issues the certificate, and how transaction-level tax information will be supplied. Confirm these details before onboarding rather than assuming that your bank will handle everything.
How Do You Claim DTAA Relief on PMS Income?
A Double Taxation Avoidance Agreement is a treaty between two countries intended to allocate taxing rights and provide relief from double taxation. The availability and form of relief depend on the treaty's wording and the nature of the income.
The DTAA benefit on PMS income is not automatic. An NRI must establish eligibility and satisfy the relevant documentation and procedural requirements.
For PMS taxation for NRI investors, the usual documentation includes:
- Tax Residency Certificate (TRC): Issued by the tax authority of the country where the investor is tax-resident.
- Form 10F: Electronic declaration containing prescribed information where required.
- PAN: Indian Permanent Account Number, where required for the investment and tax compliance.
- Supporting evidence: Such as tax identification details, beneficial ownership declarations, and other documents requested by the payer or adviser.
The Indian Income Tax Department identifies the TRC and electronic Form 10F as key requirements for claiming treaty relief.
The practical process for PMS taxation for NRI investors is to establish the investor's tax residence, identify the relevant treaty, classify each type of income, and determine whether the treaty modifies India's domestic taxing rights or rate.
How does the treaty claim work?
Suppose an investor resides in a country that has a tax treaty with India. The investor earns income from an Indian PMS portfolio and submits valid residency documentation.
The adviser must then examine the relevant treaty article. Capital gains, dividends, and interest can fall under different articles, and the treatment of one category should not automatically be applied to another.
A treaty may limit India's taxing rights, prescribe a maximum rate, or provide another form of relief. It does not necessarily eliminate Indian tax on every investment gain.
If documentation is missing or incomplete when tax is deducted, the investor may need to pursue the applicable refund or reassessment process rather than assume that the lower treaty rate will be applied retrospectively by the payer.
Read more: DTAA for NRIs
Does Your DTAA Outcome Depend on Which Country You Live In?
Yes. Country of tax residence can materially affect PMS taxation for NRI investors because India's treaties do not all contain identical provisions.
The relevant treaty may differ in its treatment of capital gains from shares, dividends, interest, and other income. Some provisions also depend on the type of asset, ownership conditions, or other eligibility criteria.
An investor living in the United States, the United Kingdom, Singapore, the UAE, or another jurisdiction should not assume that the treaty treatment available to an NRI in a different country will apply to them.
A sound assessment of PMS taxation for NRI should establish:
- The investor's tax residence for the relevant period.
- Whether the investor qualifies as a resident under the applicable treaty.
- The precise income category arising from the PMS portfolio.
- The treaty article governing that income.
- The documentation and withholding procedure needed to claim relief.
- The availability of foreign tax credit in the country of residence.
For example, an investor may face Indian tax on a capital gain and may also need to report that gain in their country of residence. Whether foreign tax credit is available, and how much can be claimed, depends on that country's domestic law and applicable treaty.
Foreign tax credit is not the same as a reduced Indian withholding rate. It is a mechanism that may mitigate double taxation in the jurisdiction providing the credit.
An NRI should therefore seek advice that considers both Indian taxation and the tax rules of their country of residence.
Can You Reduce TDS With a Lower Deduction Certificate?
A lower deduction certificate can be relevant when the tax that would otherwise be withheld is expected to exceed the amount properly deductible under the applicable law.
Under the Income-tax Act, 1961, section 197 provided a route to obtain lower or nil deduction certificates for specified payments and provisions, subject to eligibility and approval. The relevant equivalent procedure under the Income-tax Act, 2025, must be examined for payments made or credited from 1 April 2026 onward.
For PMS taxation for NRI, the application should be supported by facts such as expected taxable income, past tax records, the nature of the income, and the estimated final liability.
The general process is:
- Estimate the income expected to be taxable in India.
- Calculate the anticipated tax liability under domestic law and any substantiated treaty claim.
- Identify the appropriate application procedure and the authority responsible.
- Submit the required supporting records.
- Ensure the certificate is valid for the relevant period and payment.
- Provide it to the correct deductor before the applicable deduction event.
A certificate should not be treated as a guarantee of approval. Nor does it remove the need to file a return or pay any additional tax ultimately due.
What is Form 13?
Form 13 was associated with applications for lower or nil deduction under the earlier statutory framework. Investors dealing with payments in the current tax year should confirm the applicable form and process under the new Act and current e-filing system.
For PMS taxation for NRI, the timing matters: documentation should be arranged before relevant payments or transactions wherever possible. A certificate obtained later may not automatically reverse tax already deducted.
NRE or NRO: Which Account Should Hold a PMS?
Choosing between an NRE and NRO account is an important operational consideration in PMS taxation for NRI planning. The appropriate account depends on the funding route, repatriation basis, applicable FEMA rules, and the PMS provider's arrangements.
| Feature | NRE account | NRO account |
| Typical purpose | Holding eligible foreign-sourced funds remitted to India | Managing Indian income and other permitted funds |
| Repatriation | Generally repatriable, subject to applicable rules | Subject to applicable limits and conditions |
| Indian tax on account interest | Generally exempt under qualifying conditions | Generally taxable under applicable rules |
| PMS suitability | Depends on investment route and provider requirements | Depends on investment route and provider requirements |
An NRE account does not make investment income earned in India tax-free. Equally, using an NRO account does not automatically mean that every investment gain is permanently non-repatriable.
For PMS taxation for NRI, distinguish the tax treatment of the investment from the banking rules governing the movement of money.
What about PIS permission?
The Portfolio Investment Scheme (PIS) is a regulatory framework for specified NRI investments in listed Indian equity instruments. Whether PIS permission is required depends on the instrument, investment route, and applicable rules.
A conventional PMS should not automatically be assumed to operate under the same process as an NRI buying listed shares directly through a PIS-designated arrangement. The portfolio manager and authorised dealer bank should confirm the correct route for the proposed mandate.
Before opening an NRE account for PMS or an NRO account for PMS, ask the provider to confirm:
- The permitted funding account.
- Whether the mandate is on a repatriation or non-repatriation basis.
- The required bank and regulatory approvals.
- The account into which sale proceeds and income will be credited.
- The documentation needed for eventual outward transfers.
For a broader compliance overview, read FEMA rules for NRI investment in India.
How Do You Repatriate PMS Proceeds From India?
PMS repatriation refers to transferring eligible investment proceeds from India to an overseas bank account. For PMS taxation for NRI investors, repatriation involves both tax compliance and foreign exchange regulations.
The first distinction is between repatriating money and determining whether the underlying income is taxable. Paying tax does not automatically make every transfer permissible, and a permitted transfer does not mean the underlying investment income is tax-exempt.
What is the USD 1 million scheme?
Under the Reserve Bank of India's remittance-of-assets framework, eligible NRIs and Persons of Indian Origin may generally remit up to USD 1 million per financial year (April–March) from specified NRO balances, sale proceeds of assets, and eligible inherited assets, subject to applicable conditions and documentation. The facility covers qualifying remittances; it is not an unconditional entitlement to transfer every asset or receipt.
The applicable route depends on how the PMS was funded, the nature of the investment, whether the investment was made on a repatriation basis, and the rules governing the particular asset.
A typical repatriation checklist includes:
- PMS account statement and transaction records.
- Evidence of the original investment and its funding source.
- Capital gains and income-tax computations.
- Proof of tax deducted and paid, where applicable.
- Bank declarations and supporting foreign exchange documents.
- Any required remittance forms or chartered accountant certification.
For PMS taxation for NRI, a bank may request additional information before processing the transfer. The documents required can vary with the remittance category, amount, and circumstances.
What are Form 15CA and Form 15CB?
Form 15CA is a remitter's declaration concerning a proposed foreign remittance. Form 15CB is a certificate prepared by a chartered accountant in applicable cases, addressing taxability, withholding, and related remittance details.
Under the Income-tax Act, 1961 framework, the Income Tax Department's guidance describes four parts of Form 15CA. Part A applies to qualifying taxable remittances not exceeding ₹5 lakh during the financial year; Part B concerns qualifying larger taxable remittances with a specified tax authority order or certificate; Part C applies where the required accountant's certificate is obtained; and Part D covers remittances not chargeable to tax. Exemptions from filing can also apply in specified circumstances.
Do not assume that Form 15CB is mandatory for every transfer. The applicable form and reporting rules depend on the transaction. As the Income-tax Act, 2025 applies to relevant events from 1 April 2026, confirm the current forms and corresponding provisions before submitting a remittance request.
The bank's remittance desk and your chartered accountant should coordinate before funds are sent overseas.
For more detail, see NRI repatriation rules.
How Is the TDS Reconciled With Your Final Tax Liability?
One of the most important principles in PMS taxation for NRI is that tax withheld at source is not necessarily the final amount payable.
Consider an illustrative example:
Illustrative calculation only
Taxable income from PMS transactions
₹10,00,000
Final tax liability after applicable rules
₹1,50,000
TDS already credited
₹2,00,000
Potential refund, subject to assessment
₹50,000
Figures are hypothetical, not a suggested tax rate. Actual liability depends on the income categories, applicable law, surcharge, cess, treaty relief and other facts.
The investor should reconcile the PMS transaction report with the tax deducted, the applicable tax certificates, and the information reflected in the Indian tax records.
If excess tax was withheld, a return may be needed to claim the refund. If tax was insufficiently withheld, additional tax may remain payable.
For PMS taxation for NRI, maintain a transaction-level record that captures purchase dates, sale dates, cost of acquisition, sale consideration, applicable transaction charges, income classification, and tax withheld.
What if you paid tax abroad as well?
An investor may need to declare Indian PMS income in their country of tax residence. Whether foreign tax credit is available depends on that country's rules and the applicable treaty.
Where an Indian resident claims foreign tax credit under India's rules, Form 67 is relevant to prescribed claims. However, an NRI should not assume that Form 67 is automatically the form for claiming credit in their overseas country. The foreign jurisdiction's procedures govern the claim there.
Do NRIs Have to File an Indian Return for PMS Income?
For PMS taxation for NRI, the answer depends on the investor's income, the relevant filing provisions, and any exemption that applies.
An NRI may need to file an Indian income-tax return to report taxable capital gains, reconcile TDS, claim a refund, carry forward eligible capital losses, or claim available treaty relief.
There are limited circumstances in which non-residents with specified categories of income and prescribed TDS may qualify for an exemption from filing. These exemptions have conditions and should not be assumed to apply to a conventional PMS portfolio with multiple securities transactions.
For PMS taxation for NRI, the practical checklist is to:
- Determine residential status under the applicable rules.
- Classify all Indian-source income and realised gains.
- Reconcile the portfolio's transaction report with tax records.
- Check whether DTAA relief was correctly applied.
- Identify any additional tax payable or refund due.
- File the appropriate return and retain supporting records.
Investors should also ensure that the correct law and form apply to the relevant period. The statutory transition on 1 April 2026 makes it particularly important to verify current-year filing instructions with a qualified tax professional.
Conclusion: Make Your NRI PMS Investment More Tax-Efficient With ALTPORT
A well-managed portfolio is only one part of a successful investment strategy. Understanding PMS taxation for NRI, treaty eligibility, withholding, banking arrangements, and repatriation procedures helps investors evaluate the amount they may ultimately retain after taxes and costs.
Before investing, clarify the tax treatment of each income category, prepare your TRC and Form 10F where applicable, confirm the appropriate NRE or NRO funding route, and establish how sale proceeds can be transferred overseas.
At ALTPORT, investors can explore professional portfolio management and learn more about the considerations involved in investing in Indian alternatives.
- Explore PMS for NRIs.
- Read the NRI guide to investing in PMS and AIF.
- Visit ALTPORT to learn more about investment opportunities and investor education.
Before making an investment decision, consult a qualified Indian tax adviser and your authorised dealer bank. The right approach to PMS taxation for NRI depends on your country of residence, portfolio holdings, transaction dates, and individual circumstances.
Disclaimer
This article is intended solely for educational and informational purposes and does not constitute tax, legal, financial, or investment advice. Tax rates, treaty provisions, filing requirements, and FEMA regulations are subject to change. The Income-tax Act, 2025 applies to relevant events from 1 April 2026, so readers should verify the provisions applicable to their transactions and tax year. Consult a qualified chartered accountant, international tax adviser, and authorised dealer bank before acting on this information. Investments in securities are subject to market risks.