There will be no increase in the tax liability of individuals gaining from investment in shares through portfolio management services (PMS).

Income-tax officials are of the view that PMS is like a mutual fund which attracts only short-term capital gains tax of 10 per cent.

Following a circular by the Income-Tax Department on June 15 on tax treatment of shares, there were concerns that the investors holding stocks through PMS might  have to segregate their investment portfolio into capital assets and trading assets.

At present, profits made through the PMS route are treated as investments and attract short-term capital gains tax of 10 per cent. However, the tax liability will go up to 30 per cent if the profits fall under income from trading of shares.

"The tax treatment given to PMS investors is same as that given to mutual funds," income-tax officials said. The common factor being that in both cases the investor has no control over purchase or sale of shares.

However, in PMS stocks are bought and sold in the name of the investor, while in mutual funds investments are made in the name of the mutual fund and units of the schemes are allotted to the investor.

But the income-tax department cannot give a definite direction to the assessing officers, who take a view according to the facts and circumstances of a particular case. But while doing so, the assessing officer is bound to give reasons, sources said.

Experts say the discretionary powers given to the assessing officers is the reason behind the confusion. "The Income-Tax Department should issue a circular mentioning what constitutes capital gains and trading income," said Gaurav Taneja, partner, Ernst & Young.