Capital Gains Tax Between India and Denmark Under DTAA

Quick answer: Under the India-Denmark DTAA (signed 8 March 1989, effective in India from the financial year beginning 1 April 1990), Article 14 does not set a single capital gains rate — it allocates the right to tax by asset type across six paragraphs. India can tax gains on Indian immovable property (Article 14(1)), land-rich company shares (Article 14(4)), and shares representing at least 10% of a company's share capital (Article 14(5)) at its own domestic rates — 12.5% LTCG or 20% STCG on listed shares, 12.5% LTCG on unlisted shares. Gains on smaller shareholdings and most other property fall to the residual Article 14(6), taxable only in the seller's country of residence.

Key takeaways:

• Article 14 allocates taxing rights by asset type across six paragraphs — it does not set one capital gains rate
• India can tax gains on Indian immovable property (Article 14(1)) at domestic rates
• India can tax gains on shares representing at least 10% of an Indian company's share capital (Article 14(5))
• Gains on shareholdings under 10% fall to the residual Article 14(6) — taxable only in the seller's residence state
• Ships/aircraft gains are taxable only in the alienator's residence state (Article 14(3)), with a special proportional rule for the Scandinavian Airlines System (SAS) consortium

Capital Gains Tax Between India and Denmark

The India-Denmark DTAA, signed at Copenhagen on 8 March 1989 and effective in India from the financial year beginning 1 April 1990, addresses capital gains under Article 14 — one number higher than the OECD Model's Article 13, since this is a shifted-numbering, income-and-capital convention. Unlike dividends, interest and royalties, where the treaty sets a capped withholding rate, Article 14 instead allocates the right to tax between India and Denmark depending on the nature of the asset sold, and leaves each country's own domestic rates to apply once that right is established.

This asset-by-asset allocation is critical for Danish investors selling Indian assets — immovable property, PE-linked assets, ships, aircraft, and company shares each follow a different rule, and the outcome for shares depends heavily on whether the stake reaches a 10% threshold.

For the treaty's history and PE rules, see the India-Denmark DTAA complete guide; for the consolidated rate table across all income types, see the withholding tax rates page.

Treaty Rate vs Domestic Rate: Detailed Comparison

Article 14 does not prescribe a withholding percentage; it determines which country may tax the gain, and that country's own domestic rates then apply.

Immovable Property — Article 14(1)

Gains from the alienation of immovable property situated in India, by a Danish resident, may be taxed in India at domestic rates — 12.5% LTCG (holding period over 24 months, section 197 of the Income-tax Act, 2025, section 112 of the Income-tax Act, 1961) or applicable slab/corporate rates for short-term gains.

Movable Property Connected to a PE — Article 14(2)

Gains from the alienation of movable property forming part of the business property of a PE that a Danish enterprise has in India — including gains from alienating the PE itself, alone or with the whole enterprise — may be taxed in India at the applicable corporate rate, 35% for foreign companies plus surcharge and cess.

Ships and Aircraft — Article 14(3)

Gains from the alienation of ships or aircraft operated in international traffic, or movable property pertaining to their operation, are taxable only in the alienator's country of residence — India has no taxing right at all. The treaty carries a distinctive proportional rule for the Danish, Swedish and Norwegian air transport consortium Scandinavian Airlines System (SAS): this paragraph applies only to the share of the gains corresponding to the participation held in SAS by Det Danske Luftfartsselskab (DDL), the Danish partner in the consortium.

Land-Rich Shares — Article 14(4)

Gains from the alienation of shares of a company whose property consists, directly or indirectly, principally of immovable property situated in a Contracting State may be taxed in that State — India can tax a Danish resident's gain on shares of a land-rich Indian company regardless of the size of the stake.

Other Shares — Article 14(5): The 10% Threshold

Gains from shares other than those covered by Article 14(4), in a company resident of a Contracting State, may be taxed in that State only if the shares represent at least 10% of the company's share capital. India can therefore tax a Danish resident's gain on a 10%+ stake in an ordinary (non-land-rich) Indian company, applying its domestic rates: 12.5% LTCG on unlisted shares (section 197/section 112), 12.5% LTCG over INR 1.25 lakh on listed shares (section 198 of the Income-tax Act, 2025, section 112A of the Income-tax Act, 1961), or 20% STCG on listed shares (section 196 of the Income-tax Act, 2025, section 111A of the Income-tax Act, 1961).

Residual Clause — Article 14(6)

Gains from any property not covered by paragraphs 1 to 5 — including share parcels below the 10% threshold — are taxable only in the alienator's country of residence. A Danish portfolio investor holding, say, a 3% stake in an Indian listed company falls entirely outside India's taxing right under this treaty.

Who Qualifies for Treaty Protection on Capital Gains

Tax Residency

To rely on Article 14 — particularly the residual protection in Article 14(6) — the seller must be a tax resident of Denmark under Article 4, evidenced by a Tax Residency Certificate from Skattestyrelsen.

No Explicit Beneficial-Ownership Test

Unlike Articles 11 to 13, Article 14 does not itself reference beneficial ownership. Substance still matters, however: a Danish holding entity with no independent commercial function, interposed mainly to access Article 14(6)'s residence-only protection, risks challenge under India's domestic anti-avoidance rules regardless of the treaty text.

Anti-Abuse: PPT Applies; GAAR Is the Real Backstop

The MLI, in force for India from 1 October 2019 and Denmark from 1 January 2020, makes this a matched Covered Tax Agreement on which the Principal Purpose Test applies from FY 2020-21. Denmark's separate reservation against MLI Articles 12 to 14 changes only the treaty's own permanent establishment definition (Article 5) — not the capital gains article, despite the coincidental shared numbering with the treaty's own Article 14. India's domestic General Anti-Avoidance Rule is the operative check: section 159(6) of the Income-tax Act, 2025 (section 90(2A) of the Income-tax Act, 1961) makes the GAAR provisions in sections 178 to 184 apply notwithstanding the treaty-override rule in section 159(4), so an impermissible avoidance arrangement can lose Article 14(6)'s residence-only protection even without any MLI involvement.

India's Indirect Transfer Rules

Section 9 of the Income-tax Act, 2025 (section 9(1)(i) of the Income-tax Act, 1961), deems gains from shares of an Indian company as India-source income through section 9(2)(d), the limb covering the transfer of a capital asset situated in India. The indirect transfer provisions in section 9(10) of the Income-tax Act, 2025 (Explanation 5 to section 9(1)(i) of the Income-tax Act, 1961) can also reach gains on shares of a foreign (non-Danish, non-Indian) company that derive substantial value from Indian assets — a route Article 14(6) may not fully insulate against once GAAR is engaged.

Capital Gains-Specific Treaty Provisions Under Article 14

Meaning of "May Be Taxed"

The phrase "may be taxed" in Article 14(1), (2), (4) and (5) gives the source country the right to tax but does not oblige it to. Denmark then relieves double taxation on any gain India actually taxes through the credit method under Article 23.

Why the 10% Threshold Matters

Article 14(5)'s 10% share-capital threshold is a deliberate line: it protects small Danish portfolio holdings from Indian capital gains tax entirely (they fall to the residence-only Article 14(6)), while letting India tax gains on more substantial Danish stakes in Indian companies. This is not universal across India's treaty network — some of India's other treaties tax share gains at source regardless of stake size — so the percentage actually held on the alienation date is decisive for Denmark specifically.

The SAS Proportional Rule

Article 14(3)'s carve-out for Scandinavian Airlines System reflects the tri-national ownership of SAS by Danish, Swedish and Norwegian interests; only the proportion of any gain attributable to DDL's Danish participation in the consortium is treated under this treaty's residence-only rule.

Documentation Required for Capital Gains Treaty Claims

Tax Residency Certificate (TRC)

A TRC from Skattestyrelsen for the relevant financial year, mandatory under section 159(8) of the Income-tax Act, 2025 (section 90(4) of the Income-tax Act, 1961).

Form 41 (formerly Form 10F)

If the TRC omits any prescribed particular, Form 41 must be filed electronically on the Indian income-tax portal.

Shareholding Evidence

To establish whether Article 14(5) or the residual Article 14(6) applies, the Danish seller should document its exact shareholding percentage in the Indian company as of the alienation date — the determining fact for the 10% threshold.

Forms 145 and 146 (formerly Forms 15CA and 15CB)

For remittances of sale proceeds to Denmark, Form 145 must be filed electronically; for amounts exceeding INR 5 lakh, a Chartered Accountant's Form 146 certificate is also required.

Withholding Procedure for Indian Payers

TDS on Share Transfers

Under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961), the Indian buyer deducts tax at source on the capital gains component when purchasing shares or immovable property from a Danish non-resident. Where Article 14(6) applies (a sub-10% stake or other residual property), no Indian tax is due, but valid TRC and Form 41 should still be obtained to support that position on record.

Section 395: Lower or Nil Withholding Certificate

The Danish seller can apply to the Assessing Officer under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961) — or, for sums covered by section 393(2), under section 395(2) of the Income-tax Act, 2025 (section 195(2) and (3) of the Income-tax Act, 1961) — for a certificate specifying a lower or nil rate, particularly useful where the actual gain is small relative to the sale consideration.

Advance Ruling

For complex share-transfer structures, a Danish entity can seek an advance ruling from the Board for Advance Rulings under section 380 of the Income-tax Act, 2025 (section 245N of the Income-tax Act, 1961) to secure certainty on whether Article 14(4), 14(5) or 14(6) applies before completing the transaction.

Common Disputes and Practical Considerations

Determining the 10% Threshold

Disputes can arise over the precise shareholding percentage on the alienation date, especially where convertible instruments, options, or staggered sale tranches are involved — a stake that briefly crosses or falls below 10% around the transaction date can change the outcome from Article 14(5) (India may tax) to Article 14(6) (India may not).

Land-Rich Company Determination

Whether a company's property consists "principally" of immovable property under Article 14(4) is a question of fact and valuation, and can be contested where a company holds a mix of immovable and other business assets.

GAAR Override of the Residual Clause

Where an arrangement is found to be an impermissible avoidance arrangement under Chapter XI of the Income-tax Act, 2025 (Chapter X-A of the Income-tax Act, 1961), Article 14(6)'s residence-only protection may not apply, since GAAR overrides the treaty-benefit rule by statute. Genuine commercial substance in any Danish holding structure is essential.

Practical Examples and Calculations

Example 1: Danish Company Selling a 15% Stake in an Indian Company

Frederiksberg Holding ApS, a Danish company, sells its 15% stake in an Indian unlisted company for INR 8 crore, with an original cost of INR 3 crore, held for 3 years.

• Capital gain: INR 5 crore (long-term, over 24 months).
• India's right to tax: Yes — Article 14(5), since the 15% stake exceeds the 10% threshold.
• Indian tax: 12.5% LTCG = INR 62.5 lakh (plus surcharge and cess).
• Denmark relief: credit for the Indian tax paid, under Article 23.

Example 2: Danish Individual Selling a 3% Stake in a Listed Indian Company

Mette Jensen, a Danish individual, sells a 3% stake in an Indian listed company for a gain of INR 40 lakh.

• India's right to tax: None — the 3% stake falls below the Article 14(5) 10% threshold, so the gain is covered by the residual Article 14(6), taxable only in Denmark.
• Indian TDS: Nil, subject to a valid TRC and Form 41 on file with the buyer/broker.

Example 3: Sale of a Land-Rich Indian Company's Shares

A Danish investor holds a 6% stake in an Indian company whose assets are principally real estate. Despite the stake being under 10%, Article 14(4) — not Article 14(5) or 14(6) — governs, because the company is land-rich; India retains the right to tax the gain at its domestic rates regardless of the shareholding percentage.

Frequently Asked Questions

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

Article 14 allocates taxing rights by asset type across six paragraphs rather than setting one rate. India can tax gains on Indian immovable property, land-rich company shares, and shares representing at least 10% of a company's share capital, applying its own domestic rates. Smaller shareholdings and most other property are taxable only in the seller's country of residence.

Can India tax a Danish resident's gain on shares of an Indian company?

Only if the shares represent at least 10% of the Indian company's share capital (Article 14(5)), or if the company is land-rich (Article 14(4)), in which case the 10% threshold does not apply. India then applies domestic rates: 12.5% LTCG on unlisted or listed shares (over the applicable holding period), or 20% STCG on listed shares.

What happens if a Danish investor holds less than 10% of an ordinary Indian company?

The gain falls to the residual Article 14(6), which is taxable only in Denmark. India has no right to tax it, provided the company is not land-rich under Article 14(4) and the structure has genuine commercial substance.

How are gains on ships and aircraft taxed under this treaty?

Article 14(3) taxes such gains only in the alienator's country of residence. The treaty carries a special rule for the Scandinavian Airlines System (SAS) consortium: only the share of any gain attributable to the Danish partner, Det Danske Luftfartsselskab (DDL), is covered by this residence-only rule.

Does India's GAAR override the residual capital gains protection?

Yes. Section 159(6) of the Income-tax Act, 2025 (section 90(2A) of the Income-tax Act, 1961) makes the GAAR provisions apply notwithstanding the treaty-override rule, so an arrangement found to be an impermissible avoidance arrangement can lose Article 14(6)'s residence-only protection even without any MLI involvement.

What documentation does a Danish seller need for a capital gains treaty claim?

A Tax Residency Certificate from Skattestyrelsen, Form 41 (formerly Form 10F) filed electronically if needed, evidence of the exact shareholding percentage on the alienation date, and Form 145 (with Form 146 for remittances exceeding INR 5 lakh). A lower or nil withholding certificate can be sought under section 395 of the Income-tax Act, 2025.