Taxed like the scheme's portfolio, not like a hedge fund
A SIF is a SEBI-registered scheme, so its units are taxed under the mutual-fund rules. What decides your rate is whether the scheme qualifies as equity-oriented (broadly, holding at least 65% in domestic listed equity) or not. Every scheme document states its tax classification — check that line before you invest.
Equity-oriented schemes
Gains on units held for more than 12 months are long-term; shorter holdings are short-term and taxed at the higher short-term rate. Securities transaction tax applies on redemption. Rates and the annual long-term exemption limit are set each Budget, so confirm the current figures before you file.
Non-equity-oriented schemes
If the portfolio does not clear the equity threshold, gains are taxed as per the rules applying to specified/debt-oriented funds, which generally means taxation at your slab rate with a longer holding period before any concessional treatment. The derivative and debt weight in a long-short strategy makes this a real possibility, so never assume equity treatment.
Inside the fund vs in your hands
You are not taxed on the manager's trading. Buying, selling and rolling derivatives inside the scheme has no tax effect for you. Tax arises only when you redeem, switch between schemes (a switch is a redemption), or receive a payout under an income-distribution option, which is added to your income.
For non-residents
TDS is deducted at source on NRI redemptions, at rates that depend on the scheme type and holding period. You can claim treaty relief with a tax residency certificate and Form 10F, and set off the Indian tax in your country of residence where a treaty allows it.
Records to keep
Keep every account statement, the allotment and redemption NAVs, the scheme's tax classification, and your capital-gains statement from the fund house. Tax rules change with each Finance Act — treat this page as orientation and confirm the numbers with your chartered accountant before filing.
For information only, not investment or tax advice. Rules and tax rates change with each Finance Act and with SEBI circulars — confirm the current position with AGM Wealth (ARN 124172) and your chartered accountant before acting.