Capital Gains Tax Between India and Brazil Under DTAA

Quick answer: Article 13 of the India-Brazil DTAA, entirely replaced by the 2022 amending protocol, allocates capital-gains taxing rights by asset type rather than setting a single rate: immovable property is taxed where situated, PE-connected movable property where the PE is, ships and aircraft only in the operating enterprise's state, shares of a resident company in that company's residence state, and — unusually — gains from any other property may be taxed in both countries. The treaty does not cap the rate; India applies its domestic capital-gains rates (12.5% LTCG, 20% STCG on listed equity) where it has taxing rights, and Brazil provides relief for the Indian tax paid.

Key takeaways:

• Article 13 was replaced in full by the 2022 protocol — five paragraphs, each allocating rights by asset type
• Shares in an Indian company are taxable in India under Article 13(4) — the company's country of residence, not the seller's
• Article 13(5)'s residual rule allows both India and Brazil to tax gains not covered by paragraphs 1-4 — unlike an OECD-model residence-only residual rule
• Ships/aircraft gains are taxable only in the operating enterprise's state (not a "place of effective management" test)
• No treaty rate cap — India's domestic 12.5% LTCG / 20% STCG rates apply where India has taxing rights

Capital Gains Tax Between India and Brazil

The India-Brazil DTAA was signed on 26 April 1988 and entered into force on 11 March 1992. Its capital-gains article, Article 13, was deleted and replaced in full by the amending protocol signed at Brasília on 24 August 2022, which entered into force on 18 October 2025 following Brazil's ratification (Legislative Decree 200 of 11 September 2025; Decree 12.667 of 13 October 2025) and India's notification No. 39/2026, S.O. 1647(E) of 30 March 2026. The revised article applies in India for income arising from FY 2026-27 onward (1 April 2026); Brazil applies it to taxable years from 1 January 2026.

Unlike the dividend, interest, and royalty articles, Article 13 does not set a withholding-tax percentage. Instead it allocates which country may tax a given category of gain — India's own domestic capital-gains rates then apply to whatever falls within India's taxing right. The treaty follows a UN Model tilt in several respects, most importantly a residual rule that lets both countries tax gains not otherwise covered, rather than reserving them to the seller's residence state alone.

Article 13, Paragraph by Paragraph

Article 13(1): Immovable Property

"Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6, which is situated in the other Contracting State, may be taxed in that other State." Gains from selling Indian real estate — by a Brazilian resident — may be taxed in India, the situs state, regardless of where the seller resides.

Article 13(2): Permanent-Establishment and Fixed-Base Movable Property

"Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other State." Gains on assets forming part of a Brazilian enterprise's Indian PE — including gains from selling the PE itself — may be taxed in India.

Article 13(3): Ships and Aircraft

"Gains that an enterprise of a Contracting State that operates ships or aircraft in international traffic derives from the alienation of such ships or aircraft, or of movable property pertaining to the operation of such ships or aircraft, shall be taxable only in that State." The exclusive taxing right belongs to the state of the operating enterprise — this treaty ties the rule to the enterprise's own state, not to a "place of effective management" test used in some other Indian treaties, so the analysis turns on which state the operating enterprise itself belongs to.

Article 13(4): Shares

"Gains from the alienation of shares in a company which is a resident of a Contracting State may be taxed in that State." This is a company's-residence rule, not a seller's-residence rule: a Brazilian resident selling shares in an Indian company faces India's taxing right under this paragraph, because the company (not the seller) is Indian-resident. Correspondingly, an Indian resident selling shares in a Brazilian company can be taxed by Brazil.

Article 13(5): The Residual Rule — Both States May Tax

"Gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3 and 4 may be taxed in both Contracting States." This is the treaty's most distinctive feature for capital gains. Many Indian treaties following the OECD Model reserve residual-category gains (intellectual property, goodwill, partnership interests, and other assets not otherwise listed) exclusively to the seller's state of residence. The India-Brazil treaty instead follows a UN Model / Brazil-style approach that lets both India and Brazil tax such gains, with double-taxation relief provided by the residence country crediting the source country's tax rather than the source country being excluded from taxing at all.

Domestic Indian Capital Gains Rates

Where India has a taxing right under Article 13, its own domestic rates apply — the treaty does not itself set a percentage. Under the Income-tax Act as amended by the Finance Act 2024, India's current capital-gains rates for a non-resident are: 12.5% long-term capital gains (LTCG) on both listed equity shares held over 12 months (exceeding the annual INR 1.25 lakh exemption) and unlisted shares or other capital assets held over 24 months, without indexation; and 20% short-term capital gains (STCG) on listed equity shares held up to 12 months. These correspond to section 198 of the Income-tax Act, 2025 (LTCG on listed equity; section 112A of the Income-tax Act, 1961), section 197 of the Income-tax Act, 2025 (general long-term capital gains; section 112 of the Income-tax Act, 1961), and section 196 of the Income-tax Act, 2025 (STCG on listed equity; section 111A of the Income-tax Act, 1961). Surcharge and health and education cess apply on top of these domestic rates in the ordinary way, since Article 13 imposes no rate ceiling for them to override.

Who Qualifies for Treaty Protection

Tax Residency

The person claiming the benefit of a specific Article 13 allocation must be a tax resident of Brazil (or India, for the reverse direction) under Article 4 of the treaty, evidenced by a Tax Residency Certificate from the Receita Federal do Brasil where required. Where a company is dual-resident under each country's domestic law, Article 4(3) resolves residence by place of effective management first and, failing agreement, by mutual agreement procedure between the two competent authorities — with no treaty relief available absent that agreement.

Anti-Abuse: Article 26-A (No MLI)

Brazil has never signed the OECD Multilateral Instrument, so this treaty is not a Covered Tax Agreement and the MLI's Principal Purpose Test does not apply. The 2022 protocol's own Article 26-A instead requires a claimant to be a "qualified person" under a Limitation of Benefits test, subject to an active-business exception that excludes pure investment-holding vehicles, and independently denies benefits under Article 26-A(9) where obtaining them "was one of the principal purposes of any arrangement or transaction." A Brazilian entity interposed mainly to access a favourable Article 13 allocation — for example, to claim the company's-residence rule under paragraph 4 — is squarely within scope, alongside India's domestic GAAR and indirect-transfer provisions (Protocol clause 1 preserves both).

Mutual Agreement Procedure Deadline

Article 25(1), as amended by the 2022 protocol, requires a case of taxation not in accordance with the treaty to be "presented within three years from the first notification of the action resulting in taxation not in accordance with the provisions of the Convention" — a firm three-year window to invoke the Mutual Agreement Procedure if a capital gain is taxed by both states in a way the taxpayer believes conflicts with Article 13. The treaty does not provide for MAP arbitration, so a case that cannot be resolved between the competent authorities has no further treaty-based escalation route.

Rate and Allocation Table

Worked Examples

Example 1: Brazilian Investor Selling Unlisted Indian Shares

Sertão Capital Ltda, a Brazilian fund, sells its 8% unlisted stake in an Indian manufacturing company for a gain of INR 6 crore, held for three years.

• Taxing right: Article 13(4) — the company is Indian-resident, so India may tax the gain.
• Indian tax: long-term (held over 24 months), so 12.5% LTCG = INR 75,00,000, plus surcharge and cess.
• Brazil relief: Brazil provides a foreign tax credit for the Indian tax paid, against Sertão's Brazilian tax on the same gain.

Example 2: Brazilian Individual Selling Listed Indian Shares

Sr. Almeida, a Brazilian resident, sells listed shares of an Indian company on the NSE for a gain of INR 15 lakh, held for eight months.

• Taxing right: Article 13(4) — India may tax.
• Indian tax: short-term (under 12 months), so 20% STCG under section 196 (section 111A of the 1961 Act) applies to the full gain, plus surcharge and cess.
• Brazil relief: a credit for the Indian tax against Sr. Almeida's Brazilian tax liability on the same gain.

Example 3: Residual-Category Asset — Both States Tax

An Indian resident sells a partnership interest in a Brazilian professional services firm — an asset outside paragraphs 1 through 4 — for a gain. Under Article 13(5), both India and Brazil may tax this gain; the seller's residence country (India) then provides a foreign tax credit for the Brazilian tax paid under India's own double-taxation relief provisions, rather than Brazil being excluded from taxing at source as it would be under an OECD-style residual rule.

Common Mistakes and Compliance Tips

Mistake 1: Assuming a Residence-Only Residual Rule

Advisors familiar with OECD-model treaties sometimes assume gains outside the specific categories are taxable only in the seller's residence state. Article 13(5) of the India-Brazil treaty explicitly allows both countries to tax such gains — a materially different, and less favourable, allocation than the OECD default.

Mistake 2: Confusing "Company's Residence" With "Seller's Residence" for Share Gains

Article 13(4) turns on where the underlying company is resident, not where the seller resides. A Brazilian seller of Indian company shares is within India's taxing right precisely because the company, not the seller, is Indian.

Mistake 3: Applying Stale Capital-Gains Rates

Following the Finance Act 2024 changes effective 23 July 2024, unlisted-share LTCG is 12.5% without indexation (not the pre-2024 20%-with-indexation figure), and listed-share STCG under section 196 (section 111A of the 1961 Act) is 20% (not the pre-2024 15%). Using the older figures materially understates the Indian tax due.

Mistake 4: Overlooking the Three-Year MAP Deadline

A taxpayer disputing double taxation of the same gain by both India and Brazil under Article 13(5) must present the case within three years of the first notification of the disputed taxation — missing this window forecloses the Mutual Agreement Procedure route entirely, and the treaty provides no arbitration fallback.

For a fuller treaty overview see the India-Brazil DTAA complete guide and the withholding tax rate table. For structuring cross-border share transfers and capital-gains compliance between India and Brazil, contact Beacon Filing's chartered accountants and tax advisors.

Frequently Asked Questions

How are capital gains taxed under the India-Brazil DTAA?

Article 13, replaced in full by the 2022 protocol, allocates taxing rights by asset type: immovable property is taxed where situated, PE-connected movable property where the PE is, ships/aircraft only in the operating enterprise's state, shares in the company's residence state, and other property in both states. The treaty sets no rate — India's domestic rates apply where it has taxing rights.

Can India tax a Brazilian resident's gain from selling shares of an Indian company?

Yes. Under Article 13(4), gains from shares in a company resident in a Contracting State may be taxed in that state — so a Brazilian resident selling Indian company shares falls within India's taxing right, because the company is Indian-resident.

Does Article 13(5) protect residual-category gains from double taxation at source?

Not fully at source: Article 13(5) allows both India and Brazil to tax gains outside paragraphs 1-4, unlike an OECD-model residual rule that reserves such gains to the seller's residence state alone. Relief comes through the residence country crediting the source-country tax, not through excluding source-state taxation.

What Indian domestic rate applies to a non-resident's capital gains?

12.5% long-term capital gains (listed equity over 12 months above the INR 1.25 lakh exemption, or unlisted assets over 24 months, without indexation) and 20% short-term capital gains on listed equity held up to 12 months, under sections 198, 197, and 196 of the Income-tax Act, 2025 respectively (sections 112A, 112, and 111A of the Income-tax Act, 1961).

How are gains from ships and aircraft treated?

Article 13(3) gives exclusive taxing rights to the state of the enterprise operating the ship or aircraft in international traffic — the rule is tied to the operating enterprise's own state, not a separate "place of effective management" test.

Does the MLI affect the India-Brazil DTAA's capital-gains article?

No. Brazil has not signed the OECD Multilateral Instrument, so this treaty is not a Covered Tax Agreement. Anti-abuse protection instead comes from the treaty's own Article 26-A (Limitation of Benefits plus Principal Purpose Test), inserted by the 2022 protocol.