Taxation
6 questions. Each answer is explained.
Question 1 of 6Practice · Series XXI-B — Portfolio Managers
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Learn these topics
More units in NISM Series XXI-B
- Investment Landscape and Required Return4
- Introduction to Securities Markets and Participants3
- Investing in Stocks and Equity Research7
- Investing in Fixed Income Securities and Bond Valuation6
- Derivatives in Portfolio Management6
- Mutual Fund6
- Role of Portfolio Managers in India8
- Operational Aspects of Portfolio Managers (Onboarding and Fees)8
- Portfolio Management Process and Asset Allocation8
- Regulatory, Governance and Ethical Aspects of Portfolio Managers8
- Introduction to Indices6
- Concept of Informational Efficiency6
- Behavioral Finance6
- Introduction to Modern Portfolio Theory6
- Introduction to Capital Market Theory6
- Risk8
- Equity Portfolio Management Strategies14
- Fixed Income Portfolio Management Strategies14
- Performance measurement and evaluation of Portfolio Managers8
- Portfolio Rebalancing6
Exam format
| Questions | 120 · 1 or 2 marks each |
|---|---|
| Duration | 180 min · 3 hours |
| Pass mark | 60% · 90 of 150 marks |
| Negative marking | 25% · 0.25 or 0.5 marks off per wrong answer |
| Certificate validity | 3 years · from the date of the examination |
| Marks for this unit | Not published by NISM |
NISM Series XXI-B Portfolio Managers
Exam rules read on NISM's site on 30 October 2026. Check the current rules on NISM's site (opens in a new tab)
What these answers assume, and when it was last checked
Each question uses the rules listed below. We last checked them on 5 September 2026. A Budget or SEBI circular can change a rate, lot size or expiry day. If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.
- NSE uses Tuesday expiry and BSE uses Thursday expiry. This applies from 1 September 2025.
- The January 2026 index lot sizes are NIFTY 65, BANKNIFTY 30, FINNIFTY 60, MIDCPNIFTY 120 and NIFTYNXT50 25.
- The October 2024 SEBI framework sets a minimum index contract value of Rs 15–20 lakh. Each exchange may list one weekly benchmark index.
- Option buyers pay the premium upfront from 1 February 2025. A short index option has an extra 2% Extreme Loss Margin on expiry day from 20 November 2024.
- Equity short-term capital gains are taxed at 20%. Long-term gains are taxed at 12.5% above Rs 1.25 lakh. Both rates apply from 23 July 2024.
- F&O income is non-speculative business income in ITR-3. NSE equity derivatives trade from 9:15 a.m. to 3:40 p.m.
- The final ten-minute session began on 3 August 2026. It aligns with the cash market Closing Auction Session.
- Most Securities Transaction Tax questions test the base and who pays. On an option sale, it is the premium and the seller pays. On a futures sale, it is the traded value and the seller pays.
- On exercise, Securities Transaction Tax uses intrinsic value: settlement price minus strike price. The buyer pays it.
- Two questions test the current rate. From 1 April 2026, option sales carry 0.15% on the premium and futures sales carry 0.05% on traded price. The earlier rates were 0.10% and 0.02% from 1 October 2024.
- This section uses the T+1 rolling settlement cycle. Obligations are fixed on T+1. A short delivery goes to buy-in auction on T+1 and settles on T+2.
- The trade-for-trade surveillance segment uses direct close-out. Funds pay in by 10:30 a.m. and pay out on or after 1:30 p.m. on settlement day.
- Securities pay in to the settlement pool by 10:30 a.m. They pay out directly to the client’s demat account by 3:30 p.m.
- The 3:30 p.m. deadline replaced 1:30 p.m. under SEBI’s 10 October 2024 circular. Direct client credit was required by SEBI’s 5 June 2024 circular.
- The optional T+0 cycle trades until 1:30 p.m. Obligations are fixed by 2:30 p.m. on the trade day. An early pay-in shortage is closed out directly.
- Cash-market Value at Risk margin is six times exponentially weighted moving-average volatility. It has a 9% floor for Group I, a 21.5% floor for Group II, and a fixed 50% or 75% level for Group III.
- Extreme Loss Margin is 3.5% for a share and 2% for a broad-market-index exchange traded fund. Mark-to-market margin is collected before the next day’s trading. The trade-for-trade segment has 100% upfront margin.
- Close-out uses the higher of the highest price from trade day to auction day and 20% above the auction day’s official close.
- A funds shortage costs 0.07% a day. The trading facility is withdrawn at a shortage of Rs 5 lakh or more.
- SCORES allows 21 calendar days, then two 15-day review levels. Online Dispute Resolution moves from conciliation to arbitration after the market participant and SCORES steps.
- At NSE, the Investor Protection Fund limit is Rs 35 lakh per investor for each defaulting or expelled member. This applies to claims arising after 13 August 2024.
- A Basic Services Demat Account has no annual maintenance charge up to Rs 4 lakh of holdings. It costs up to Rs 100 above that, until the Rs 10 lakh eligibility ceiling. These slabs apply from 1 September 2024.
- The rupee pairs are USD-INR, EUR-INR, GBP-INR and JPY-INR. The cross-currency pairs are EUR-USD, GBP-USD and USD-JPY.
- Each contract covers 1,000 units of the foreign currency, except JPY-INR. JPY-INR covers 100,000 yen and is quoted in rupees per 100 yen.
- The tick is 0.25 paise, or Rs 0.0025. It equals Rs 2.50 a contract.
- Rupee pairs trade from 9:00 a.m. to 5:00 p.m. A monthly contract stops trading at 12:30 p.m. two working days before the expiry month’s last business day.
- Final settlement is in cash at the FBIL reference rate on expiry day. FBIL, Financial Benchmarks India, has published this rate in place of the Reserve Bank since 2018. Premium-style European options are quoted in rupees. The buyer pays the premium in cash on T+1.
- Daily settlement is on T+1 and final settlement is on T+2.
- NSE Clearing circular 026/2020 sets SPAN margin plus Extreme Loss Margin. The futures margin is 0.50% for USD-INR, 0.15% for EUR-INR, 0.25% for GBP-INR and 0.35% for JPY-INR. A short option has 0.75%. These figures apply from 1 June 2020.
- A USD-INR client may hold 6% of total open interest or USD 20 million, whichever is higher. A trading member may hold 15% or USD 100 million.
- A resident user has one USD 100 million equivalent limit across all rupee pairs and exchanges. No document is needed below that limit, but a valid underlying contracted exposure must still exist. This clarification applies from 3 May 2024.
- The currency segment has no Securities Transaction Tax.
The exam figures (questions, time, pass mark, negative marking and certificate validity) come from NISM's own pages, read on 30 October 2026. Timed practice uses the same figures. Study with the official workbook as well.
The written-out answers on this page are hidden while your timed set runs.
All 6 questions on Taxation, with answers
Q1Which status helps determine the geographic scope of an investor’s taxable income?
Option A. Preferred stock-exchange membership
Why it is wrong: A preferred trading venue does not determine tax residence.
Option B. The portfolio’s market-cap category
Why it is wrong: A large-cap or small-cap label does not establish the investor’s tax residence.
Option C. The account’s preferred reporting language
Why it is wrong: Reporting language has no such role in determining geographic tax scope.
Option D. Tax residential status — Correct answer
Answer: D. Tax residential status helps determine which income falls within a country’s tax scope. The applicable legal tests must be checked rather than inferred only from citizenship. Remember: Tax residence and citizenship are not automatically the same.
Hint, shown before you answer in practice mode: Separate a person’s tax connection with a country from investment preferences. Common mistake: Using nationality alone to decide the taxation of worldwide income.
XXI-B-057easyconceptual
Q2A bond makes its scheduled coupon payment to the holder. Which economic income stream does this represent?
Option A. Repayment of the bond’s principal
Why it is wrong: A coupon is distinct from repayment of the amount borrowed.
Option B. Interest income — Correct answer
Option C. A gain from selling the bond
Why it is wrong: A coupon does not require a sale or measure a sale-price gain.
Option D. Dividend income
Why it is wrong: Dividends are distributions associated with equity ownership rather than the bond’s coupon.
Answer: B. A scheduled coupon is interest income because it compensates the holder under the debt contract. It is distinct from principal repayment or a gain on disposal. Remember: Separate interest receipts from disposal gains and principal repayments.
Hint, shown before you answer in practice mode: Identify what the bond contract pays for the use of borrowed money. Common mistake: Calling every cash receipt from an investment a capital gain.
XXI-B-058easyconceptual
Q3An investment bought for ₹2,00,000 is sold for ₹2,40,000. Ignoring tax and charges, what is the realised economic gain?
Option A. ₹40,000 — Correct answer
Option B. ₹2,00,000
Why it is wrong: This is the original cost, not the amount gained.
Option C. ₹4,40,000
Why it is wrong: Adding cost and sale proceeds does not measure a gain.
Option D. ₹2,40,000
Why it is wrong: The sale proceeds include recovery of the original investment.
Answer: A. The realised economic gain is ₹40,000 because proceeds exceed cost by that amount. Working: ₹2,40,000 − ₹2,00,000 = ₹40,000. This calculation does not determine the applicable tax treatment or tax rate. Remember: Sale proceeds and the gain on a sale are different amounts.
Hint, shown before you answer in practice mode: Distinguish return of the original capital from an increase over it. Common mistake: Applying a tax rate directly to total sale proceeds without identifying the relevant tax base.
XXI-B-059mediumnumerical
Q4A statement shows a dividend receipt of ₹9,000 after ₹1,000 tax withholding. What gross dividend amount does the statement imply?
Option A. ₹8,000
Why it is wrong: This subtracts tax withholding from an amount already stated after withholding.
Option B. ₹11,000
Why it is wrong: This adds the withheld amount twice.
Option C. ₹10,000 — Correct answer
Option D. ₹9,000
Why it is wrong: This ignores the withheld part of the gross dividend.
Answer: C. The gross dividend is ₹10,000 because it includes both the cash received and the amount withheld. Working: ₹9,000 + ₹1,000 = ₹10,000. The withholding amount is a case input, not an assertion of a current statutory rate. Remember: Net cash received can differ from the gross income shown for tax reporting.
Hint, shown before you answer in practice mode: Reconstruct the amount before the deduction shown on the statement. Common mistake: Treating net cash as the entire gross income.
XXI-B-060mediumnumerical
Q5What is a central purpose of a Double Tax Avoidance Agreement between two countries?
Option A. To provide agreed relief and rules for overlapping taxing claims — Correct answer
Option B. To exempt every resident’s income from tax everywhere it is earned
Why it is wrong: Tax treaties do not create a universal exemption from all tax.
Option C. To guarantee identical tax rates for every investor in both countries
Why it is wrong: Treaty outcomes depend on the income, residence and applicable conditions.
Option D. To replace every domestic tax rule in both countries with treaty rules
Why it is wrong: Domestic law remains relevant alongside the treaty and its conditions.
Answer: A. A Double Tax Avoidance Agreement provides agreed rules and relief where countries’ taxing claims overlap. Eligibility and the relevant treaty article must be checked for the specific income. Remember: Treaty relief is conditional and income-specific rather than automatic.
Hint, shown before you answer in practice mode: Think about income that has a tax connection with more than one country. Common mistake: Assuming a foreign income source means the income is tax-free.
XXI-B-061mediumconceptual
Q6For a hypothetical comparison, A earns 12% taxed at 30% and B earns 10% taxed at 10%. Which after-tax return is higher?
Option A. A is higher by 0.60 percentage points
Why it is wrong: This reverses the comparison between the calculated after-tax returns.
Option B. B is higher by 0.60 percentage points — Correct answer
Option C. A is higher by 2.00 percentage points
Why it is wrong: This compares gross returns and ignores the stated hypothetical taxes.
Option D. B is higher by 2.40 percentage points
Why it is wrong: This does not compare the two returns after their respective tax deductions.
Answer: B. B has the higher after-tax return by 0.60 percentage points under the stated hypothetical assumptions. A retains 12% × (1 − 0.30) = 8.40%. B retains 10% × (1 − 0.10) = 9.00%. Difference = 9.00% − 8.40% = 0.60 percentage points. These rates are invented case assumptions and are not current Indian tax rates. Remember: A higher pre-tax return need not be a higher after-tax return.
Hint, shown before you answer in practice mode: Calculate the retained return on each investment separately. Common mistake: Ranking investments by gross return without applying the stated tax assumptions.
XXI-B-062hardnumerical
Taxation: common questions
How many practice questions are there on Taxation?
6 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 21 practice topics for NISM Series XXI-B, which has 150 questions in total.
Are these real NISM Series XXI-B questions on Taxation?
No. LearnNifty wrote every question from NISM's public syllabus. NISM does not publish its question bank, so nobody can offer you the real paper. Use these questions to check that an idea has gone in. Use the official NISM workbook to see what is examined.
Does negative marking apply to NISM Series XXI-B?
Yes. NISM takes off 25% of a question's marks for a wrong answer. On a 1 or 2-mark question that is 0.25 or 0.5 marks off. A blank question earns nothing and loses nothing, so a wrong guess costs marks on this paper. Timed practice here uses the same rule.
Are these practice questions kept up to date?
Each question is written against the rules printed on this page, last checked on 5 September 2026. A Budget or a SEBI circular can change a rate, a lot size or an expiry day. If one of those rules changes before your exam, treat the questions that use it as out of date. Then check NISM's current workbook.
Regulatory, Governance and Ethical Aspects of Portfolio Managers
8 questions on Regulatory, Governance and Ethical Aspects of Portfolio Managers. Its quiz opens on that unit.
Open Regulatory, Governance and Ethical Aspects of Portfolio ManagersPaper Trading Try it on the practice trading desk