Tax on Specialised Investment Funds (SIFs): What Investors Must Know

Taxation of Specialised Investment Funds (SIFs): A Complete Guide for Investors

Specialised Investment Funds (SIFs) are emerging as a new investment option for sophisticated investors. While they offer flexible and advanced investment strategies, taxation plays a crucial role in determining actual returns. This article explains the taxation of SIFs for Financial Year 2025–26 in a simple, newspaper-style format.

What is a Specialised Investment Fund (SIF)?

A Specialised Investment Fund is a pooled investment vehicle that may follow equity-oriented, debt-oriented or hybrid strategies. Taxation depends on the nature of the fund, holding period and residential status of the investor.

Tax on Income Distribution (IDCW Option)

If an investor chooses the IDCW option, the income distributed is taxable in the hands of the investor. Tax is deducted by the fund house before distribution.

Investor Status	Tax Rate	TDS Applicable
Resident Investor	As per applicable income-tax slab	10% (if total distribution exceeds ₹10,000 in a financial year)
Non-Resident Investor	20%	20% (subject to DTAA, if applicable)

Capital Gains Tax on Equity-Oriented SIFs

An SIF is treated as equity-oriented if at least 65% of its assets are invested in listed Indian equities and Securities Transaction Tax (STT) is paid on redemption.

Type of Capital Gain	Holding Period	Resident Tax Rate	NRI Tax Rate	TDS (Resident)	TDS (NRI)
Short-Term Capital Gain (STCG)	Up to 12 months	20%	20%	Nil	Applicable
Long-Term Capital Gain (LTCG)	More than 12 months	12.5% (above ₹1.25 lakh)	12.5%	Nil	Applicable

Long-term capital gains up to ₹1,25,000 per financial year are exempt. Indexation and foreign exchange benefits are not available.

Capital Gains Tax on Non-Equity Oriented SIFs

SIFs with More Than 65% Investment in Debt (Specified Mutual Funds)

These funds are treated as Specified Mutual Funds under Section 50AA. All gains are considered short-term capital gains, irrespective of the holding period.

Investor Status	Tax Rate	TDS Applicability
Resident Investor	As per income-tax slab	Nil
Non-Resident (Other than FII)	30%	Applicable
Foreign Institutional Investor (FII)	30%	Nil

SIFs with Up to 65% Investment in Debt

Type of Gain	Holding Period	Resident Tax Rate	NRI Tax Rate	TDS (Resident)	TDS (NRI)
STCG – Listed	Up to 12 months	As per slab	30%	Nil	Applicable
STCG – Unlisted	Up to 24 months	As per slab	30%	Nil	Applicable
LTCG – Listed	More than 12 months	12.5%	12.5%	Nil	Applicable
LTCG – Unlisted	More than 24 months	12.5%	12.5%	Nil	Applicable

TDS on Capital Gains – Important Note for NRIs

In case of Non-Resident investors (other than FIIs), tax shall be deducted at source (TDS) on capital gains at the time of redemption under Section 195 of the Income-tax Act. TDS shall be deducted at applicable tax rates plus surcharge and health & education cess, subject to DTAA provisions wherever applicable.

Key Takeaways

• Residents do not face TDS on capital gains from SIFs.
• NRIs are subject to TDS on both short-term and long-term capital gains.
• Equity-oriented SIFs are more tax-efficient for long-term investors.
• Debt-heavy SIFs may lead to higher post-tax impact.

Disclaimer: Mutual Fund investments are subject to market risks. Past performance is not indicative of future returns. Tax laws are subject to change. Investors are advised to consult their tax advisor before making any investment decision.