PMS fees: management fee, performance fee, and their tax deductibility

PMS typically charges: Management fee (1-2% of AUM annually) + Performance fee / profit sharing (10-20% of profits above a hurdle rate, typically 10%).

Tax deductibility: Management fee and performance fee incurred in connection with earning capital gains are deductible from capital gains under Sec 72, Income-tax Act 2025 (old Sec 48) as "expenses incurred wholly and exclusively in connection with the transfer." This is contested, the IT department has tried to disallow these. Courts have generally allowed them, but it remains a risk area. Best practice: Ensure the PMS gives you a detailed fee breakup in the annual statement. Claim fees as deduction from capital gains, not as a business expense.