Question 1

Do I need to report every PMS transaction in my ITR?

Accepted Answer

Yes. A PMS portfolio is managed in your own demat account — you are the direct owner of each underlying security. Every purchase and sale made by the PMS manager on your behalf is a separate capital transaction in your name. For ITR purposes, each scrip-level gain or loss must be reported in Schedule CG with the date of purchase, date of sale, cost of acquisition, and sale proceeds. Filing only the net PMS return as a single line item in the ITR is incorrect and is a common cause of income tax scrutiny notices. A CA prepares the scrip-level schedule from the PMS transaction statement.

Question 2

What is Section 115UB and how does it apply to AIF investors?

Accepted Answer

Section 115UB of the Income Tax Act, 1961 is the pass-through provision for Category I and Category II AIFs. Under this section, income accruing in the AIF is deemed to accrue in the hands of each investor in the same proportion as their unit holding on the last day of the financial year. The income retains its character — business income, short-term capital gains, long-term capital gains — and is taxed at the investor's applicable rate. The AIF itself pays no tax on this income. The investor receives Form 64C from the AIF, which specifies the income by nature and must be included in the investor's ITR. Category III AIFs are not pass-through — they pay tax at the fund level.

Question 3

I received a Form 64C from an AIF showing ₹0 income but a capital loss. Can I set that off?

Accepted Answer

Yes. Category I and II AIF losses are passed through to investors under Section 115UB — a net capital loss at the AIF level is apportioned to each investor and can be set off against the investor's other capital gains of the same nature (STCG against STCG or LTCG; LTCG against LTCG). Unabsorbed capital losses from AIF pass-through can be carried forward for 8 assessment years, subject to the ITR being filed by the due date. This is one of the genuine tax advantages of Category I/II AIF investment over Cat III AIF (where losses cannot be passed through to investors).

Question 4

How does Category III AIF taxation differ from Category I/II?

Accepted Answer

Category III AIFs (hedge funds, PIPE funds, complex strategies) are taxed at the fund level under Section 115UB(5) — the AIF itself pays tax at 30% plus applicable surcharge and cess (effective ~34.94%) on its net income each year. Investors in Cat III AIFs do not pay tax again on distributions — the fund has already borne the tax. However, investors must still report their AIF income in their ITR (using Form 64C/64D), and must pay capital gains tax when they redeem or sell AIF units. The key difference from Cat I/II: Cat III investors get no benefit from their personal DTAA treaty rates or individual tax slabs — all income is taxed at the maximum fund-level rate regardless.

Question 5

How do I plan advance tax if my AIF distributes income only in March?

Accepted Answer

This is a genuine planning challenge. AIF income under Section 115UB accrues at year-end (March 31) — but the advance tax due dates are June, September, and December. If your AIF announces a large distribution in March, you have technically missed the Q1–Q3 advance tax deadlines even though you had no income to compute. The Income Tax Act provides a safe-harbour: if you pay the full tax by March 15 in one instalment, interest under Section 234C is not levied for the first three instalments (for assessees with capital gains income that is not regular income). We compute your advance tax position quarterly, factoring in expected AIF distribution timing and PMS realisation patterns.

PMS & AIF Tax Planning

PMS vs AIF — Tax Treatment at a Glance

Advance Tax Trap for PMS/AIF Investors

What We Do

Form 64C — What It Is and What To Do With It

Key Thresholds and Parameters

Related Services

AIF & SEBI Compliance

ITR Filing

Business Valuation & ESOP Valuation

CA-Led Wealth Advisory — Full Overview