Capital Gains Tax Rate Between India and Belgium
The India-Belgium Double Taxation Avoidance Agreement (DTAA), signed on 26 April 1993 and effective from 1 October 1997, addresses capital gains taxation under Article 13 (Capital Gains). Unlike most other Indian DTAAs that either preserve full domestic taxing rights or provide blanket exemptions, the India-Belgium DTAA takes a distinctive, layered approach to capital gains -- allocating taxing rights based on the nature of the asset and the size of the shareholding. This multi-paragraph structure creates both opportunities and complexities for Belgian investors in India.
The India-Belgium DTAA is one of the few Indian treaties that restricts India's right to tax capital gains on certain categories of shares. Article 13(6) provides that gains from the alienation of property other than immovable property, PE-connected movable property, shares in immovable property companies, or shares forming a 10%+ participation are taxable only in the state of the alienator's residence. This means Belgian investors selling small portfolio holdings in Indian companies may be exempt from Indian capital gains tax -- a significant advantage compared to most other DTAAs where India retains full domestic taxing rights.
For personalised guidance on structuring investments to optimise capital gains treatment, consult BeaconFiling's tax advisory team.
Treaty Rate vs Domestic Rate: Detailed Comparison
Article 13 of the India-Belgium DTAA contains six paragraphs, each addressing different categories of assets:
Article 13(1) -- Immovable Property
Gains from the alienation of immovable property situated in India may be taxed in India. The term "immovable property" has the meaning given under Indian domestic law. This gives India full taxing rights over gains from Indian real estate sold by Belgian residents.
Article 13(2) -- Movable Property of a PE
Gains from the alienation of movable property forming part of the business property of a permanent establishment maintained in India by a Belgian enterprise may be taxed in India, including gains on the alienation of the PE itself.
Article 13(3) -- Ships and Aircraft
Gains from the alienation of ships or aircraft operated in international traffic, or movable property pertaining to their operation, are taxable only in the state where the enterprise's place of effective management is situated.
Article 13(4) -- Shares in Immovable Property Companies
Gains from the alienation of shares of a company whose property consists directly or indirectly principally of immovable property situated in India may be taxed in India. This is the "real property clause" -- it ensures that gains from selling shares in companies whose value derives primarily from Indian real estate remain taxable in India.
Article 13(5) -- Shares with 10%+ Participation
Gains from the alienation of shares forming part of a participation of at least 10 per cent in the capital stock of a company which is resident in India may be taxed in India. This means India retains taxing rights over gains from substantial shareholdings (10% or more) but not over gains from smaller portfolio holdings.
Article 13(6) -- Residuary Clause (Portfolio Holdings)
Gains from the alienation of any property other than those covered in paragraphs 1 through 5 are taxable only in the state of the alienator's residence. For Belgian investors, this means gains from selling Indian shares where the holding is less than 10% are taxable only in Belgium -- India cannot tax these gains under the treaty.
Domestic Rates (Where India Has Taxing Rights)
| Asset Type | Holding Period for LTCG | STCG Rate | LTCG Rate |
|---|---|---|---|
| Listed equity shares (Indian) | 12 months | 20% (Section 111A) | 12.5% above INR 1.25 lakh (Section 112A) |
| Unlisted shares (10%+ holding) | 24 months | Slab rate (non-resident: up to 30%) | 12.5% (Section 112) |
| Immovable property | 24 months | Slab rate | 12.5% (Section 112) |
| Shares in immovable property companies | 24 months | Slab rate | 12.5% (Section 112) |
Note: The rates above reflect the post-Budget 2024 amendments. Belgian investors with less than 10% shareholding should claim treaty protection under Article 13(6) to avoid Indian taxation entirely on those gains.
Who Qualifies for the Reduced Rate
Since the India-Belgium DTAA provides exemption from Indian capital gains tax on portfolio shareholdings (less than 10%), the key qualification criteria are:
Belgian Tax Residency
The investor must be a tax resident of Belgium as defined under Article 4 of the treaty. A Tax Residency Certificate (TRC) from the Belgian Federal Public Service Finance (SPF Finances/FOD Financien) is mandatory to claim treaty benefits.
Beneficial Ownership
The Belgian entity must be the beneficial owner of the capital gains. Mere conduit arrangements where the Belgian entity acts as an agent or nominee for residents of third countries will not qualify. Under the MLI's Principal Purpose Test (PPT), which applies to the India-Belgium DTAA from FY 2020-21, arrangements whose principal purpose is to obtain treaty benefits may be denied those benefits.
Limitation of Benefits and GAAR
India's General Anti-Avoidance Rule (GAAR) under Sections 95-102 of the Income Tax Act can override treaty protections where the arrangement is primarily designed to obtain a tax benefit. Belgian entities must ensure their investment structures have genuine commercial substance beyond obtaining the Article 13(6) exemption.
10% Threshold Calculation
The 10% participation threshold under Article 13(5) is calculated based on the total capital stock of the Indian company. Belgian investors holding exactly 10% or more fall under Article 13(5), meaning India may tax the gains. Those holding less than 10% fall under Article 13(6) and benefit from exclusive Belgian taxation rights.
Capital Gains-Specific Treaty Provisions
The Unique Article 13(5)/(6) Structure
The India-Belgium DTAA's Article 13 structure is significantly more favourable to foreign portfolio investors than most other Indian DTAAs. Compare with the India-USA DTAA, which preserves India's full domestic taxing rights on all capital gains. The India-Belgium treaty restricts India's taxing rights to substantial holdings only, creating a genuine tax advantage for Belgian portfolio investors.
No See-Through for Indirect Transfers Under Treaty
In landmark tribunal decisions, it has been established that Article 13(5) of the India-Belgium DTAA does not adopt a "see-through" approach. Unlike India's domestic law (Section 9(1)(i) Explanation 5), the treaty does not reference "direct or indirect transfer" of shares. This distinction means that under the treaty, gains from the sale of shares of a Belgian holding company that holds Indian subsidiary shares may not be taxable in India under Article 13(5) -- though India's domestic GAAR provisions may separately apply.
2017 Protocol and Article 13(3A)
The Amending Protocol signed on 9 March 2017 (effective 26 June 2025) introduced Article 13(3A), which specifically addresses gains from shares acquired on or after 1 April 2017. This new provision aligns with India's domestic law on taxation of shares and ensures that gains from shares in Indian companies are taxable in India regardless of the participation threshold for shares acquired after the specified date. Belgian investors holding shares acquired before 1 April 2017 may still benefit from the original Article 13(5)/(6) structure.
MLI Impact on Capital Gains
The MLI applies to the India-Belgium DTAA from FY 2020-21. While the PPT (Principal Purpose Test) is the primary anti-abuse provision, the MLI does not directly modify Article 13's capital gains provisions. However, the PPT could be invoked to deny treaty benefits where the investment structure was primarily designed to exploit the Article 13(6) exemption.
Documentation Required
To claim treaty benefits on capital gains under the India-Belgium DTAA, the following documentation is essential:
Tax Residency Certificate (TRC)
A Tax Residency Certificate from the Belgian Federal Public Service Finance (SPF Finances/FOD Financien) is mandatory. This establishes the investor's residence for treaty purposes and is required before the Indian payer can apply treaty rates or exemptions.
Form 10F
The Belgian resident must electronically file Form 10F on the Indian Income Tax e-filing portal, providing details such as status, nationality, tax identification number, and period of residential status.
Self-Declaration
A self-declaration confirming beneficial ownership of the shares, absence of a PE in India (if applicable), and the percentage of shareholding (to establish whether Article 13(5) or 13(6) applies) must be provided to the Indian payer.
Form 15CA and Form 15CB
When sale proceeds are remitted from India to Belgium, Form 15CA (declaration of remittance) must be filed, and Form 15CB (CA certificate confirming tax compliance) must be obtained from a Chartered Accountant for payments exceeding INR 5 lakh. The CA must verify the applicable treaty article and whether the exemption under Article 13(6) applies.
Withholding Procedure for Indian Payers
Indian entities making payments to Belgian residents on account of capital gains must comply with TDS obligations under Section 195:
TDS Where India Has Taxing Rights
For shares where the Belgian investor holds 10% or more (Article 13(5)), TDS must be deducted at domestic capital gains rates:
- LTCG on listed shares: 12.5% (Section 112A)
- LTCG on unlisted shares: 12.5% (Section 112)
- STCG on listed shares: 20% (Section 111A)
- STCG on unlisted shares: Applicable slab rate
No TDS for Portfolio Holdings Under Article 13(6)
Where the Belgian investor holds less than 10% of the Indian company's shares, and Article 13(6) applies, the Indian payer should not deduct TDS -- the gains are exclusively taxable in Belgium. However, the payer must obtain the TRC, Form 10F, and a self-declaration confirming the sub-10% holding before applying the treaty exemption.
Section 197 Lower Deduction Certificate
If the actual tax liability is lower than the standard TDS rate, the Belgian investor can apply for a lower or nil deduction certificate under Section 197 from the Assessing Officer. This is particularly useful for immovable property sales where the cost of acquisition significantly reduces the taxable gain.
Common Disputes and Judicial Precedents
Article 13(5) -- 10% Participation Threshold
The primary area of dispute under the India-Belgium DTAA concerns the interpretation of the 10% participation threshold. Indian tax authorities have occasionally sought to aggregate holdings of related Belgian entities to breach the 10% threshold, while taxpayers argue that each entity should be assessed independently. Tribunal decisions have generally supported the independent entity approach, requiring the authorities to demonstrate a clear legal basis for aggregation.
Indirect Transfers and Treaty Protection
A significant judicial precedent established that Article 13 of the India-Belgium DTAA does not adopt a see-through approach for indirect share transfers. In cases involving the sale of shares of a foreign company holding Indian subsidiary shares, tribunals have held that the treaty text prevails -- if the treaty does not reference indirect transfers, India's domestic deeming provisions under Section 9(1)(i) cannot override the treaty. However, India's GAAR provisions (effective from 2017) may separately challenge such arrangements.
Immovable Property Company Definition
Article 13(4) applies to companies whose property consists "principally" of immovable property. Disputes arise over whether the threshold is 50%+ of total assets and whether the valuation should be based on book value or fair market value. The term "principally" is not defined in the treaty, leading to interpretation challenges.
Impact of 2025 Amending Protocol
The Amending Protocol's new Article 13(3A) is expected to reduce disputes over shares acquired after 1 April 2017 by aligning treaty provisions with India's domestic law. However, transitional issues may arise for shares acquired before this date, particularly regarding the interaction of the original Article 13(5)/(6) with the PPT under the MLI.
Practical Examples and Calculations
Example 1: Belgian Portfolio Investor (Less Than 10% Holding)
A Belgian resident individual purchased 5,000 shares of an Indian NSE-listed company in 2020 at INR 200 per share (INR 10,00,000 total), representing 0.5% of the company's share capital. The shares are sold in 2026 at INR 500 per share (INR 25,00,000 total).
- Holding: Less than 10% -- Article 13(6) applies
- Treaty treatment: Gains taxable only in Belgium (India cannot tax)
- Capital gain: INR 15,00,000
- Indian tax: NIL (treaty exemption under Article 13(6))
- Belgian tax: Subject to Belgian domestic capital gains rules
- Documents needed: TRC from SPF Finances, Form 10F, self-declaration of sub-10% holding
Example 2: Belgian Company with 15% Stake (Substantial Holding)
A Belgian company holds 15% of the shares in an unlisted Indian company, purchased in 2022 for INR 2,00,00,000. The shares are sold in 2026 for INR 3,50,00,000.
- Holding: 15% -- Article 13(5) applies, India may tax
- Capital gain: INR 1,50,00,000
- Classification: Long-term (held more than 24 months for unlisted shares)
- Tax in India: 12.5% of INR 1,50,00,000 = INR 18,75,000
- Belgian treatment: The Belgian company includes the gain in taxable income and claims a credit for Indian tax paid under the credit method (Article 23)
Example 3: Belgian Investor Selling Indian Property
A Belgian NRI sells an apartment in Bangalore purchased in 2019 for INR 80,00,000, selling in 2026 for INR 1,40,00,000.
- Article 13(1): Immovable property -- India has full taxing rights
- Capital gain: INR 60,00,000
- Classification: Long-term (held more than 24 months)
- Tax in India: 12.5% of INR 60,00,000 = INR 7,50,000
- TDS deducted by buyer: 12.5% under Section 195
- Belgian treatment: Tax credit for INR 7,50,000 (converted to EUR) claimed against Belgian tax liability
Frequently Asked Questions
Does the India-Belgium DTAA reduce capital gains tax on Indian shares?
It depends on the shareholding size. For Belgian investors holding less than 10% of an Indian company's shares, Article 13(6) provides that gains are taxable only in Belgium -- India cannot tax these gains. For holdings of 10% or more, India retains taxing rights under Article 13(5), and full domestic rates apply.
What is the 10% participation rule under Article 13?
Article 13(5) provides that gains from shares forming a participation of at least 10% in an Indian company's capital stock may be taxed in India. Below 10%, Article 13(6) applies, and gains are taxable only in the investor's residence state (Belgium). This creates a significant tax planning consideration for Belgian investors sizing their Indian investments.
How does the 2025 Amending Protocol affect capital gains?
The Amending Protocol introduced Article 13(3A), which applies to shares acquired on or after 1 April 2017. For shares acquired after this date, India's taxing rights are aligned with domestic law regardless of the participation threshold. Shares acquired before 1 April 2017 may still benefit from the original Article 13(5)/(6) structure.
Does the MLI's PPT affect capital gains treatment?
Yes. The MLI's Principal Purpose Test (PPT) applies to the India-Belgium DTAA from FY 2020-21. If an investment structure's principal purpose is to obtain the Article 13(6) exemption (e.g., a conduit Belgian entity set up specifically to hold less than 10% of Indian shares), the PPT could deny the treaty benefit.
Can a Belgian investor claim Foreign Tax Credit in Belgium for Indian capital gains tax?
Yes. Under Article 23 of the India-Belgium DTAA (credit method), Belgian residents who pay capital gains tax in India can claim a tax credit against their Belgian tax liability. The credit is limited to the Belgian tax attributable to the Indian-source income.
What documentation is needed to claim the Article 13(6) exemption?
A Belgian investor must provide a valid Tax Residency Certificate from SPF Finances, electronically file Form 10F on the Indian e-filing portal, and provide a self-declaration confirming beneficial ownership and that the shareholding is below the 10% threshold.
Are indirect transfers of Indian shares taxable under this DTAA?
Under the treaty, Article 13 does not adopt a see-through approach for indirect transfers. However, India's domestic law under Section 9(1)(i) Explanation 5 deems shares deriving value substantially from Indian assets as situated in India. The interaction between the treaty and domestic law remains a contested area, with GAAR providing additional tools for the revenue authorities.
Belgium — Dividend Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| General Beneficial owner is a resident of Belgium; dividends arise from investments made after 23 January 1988 | 15% | 20% | Article 10(2) |
Belgium — Interest Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| General Interest on loans advanced or debt created after 23 January 1988; beneficial owner is Belgian resident | 15% | 20% | Article 11(2) |
| Banks/Financial Institutions Interest paid to recognized Belgian banks and financial institutions | 10% | 20% | Article 11(2) |
| Government/Central Bank Interest paid to the Government of Belgium or the National Bank of Belgium | 0% | 20% | Article 11(3) |
Belgium — Royalty Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| General Royalties paid for rights granted or contracts signed after 23 January 1988; beneficial owner is Belgian resident; reduced from 30% based on MFN clause | 10% | 20% | Article 12(2) |
Belgium — FTS Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| General Fees for technical services for contracts signed after 23 January 1988; beneficial owner is Belgian resident; reduced from 30% based on MFN clause | 10% | 20% | Article 12(2) |