Quick answer: Article 13 of the India-Finland DTAA gives India a broader-than-usual right to tax capital gains: beyond immovable property and land-rich shares (Article 13(1)), India can also tax a Finnish resident's gain on any shares of an Indian-resident company under Article 13(5) -- not just land-rich ones. Only ships, aircraft, and residual "any other property" (Article 13(6)) are protected as residence-only. There is no reduced treaty rate for capital gains; India applies its ordinary domestic capital gains rates, and Finland relieves double taxation by ordinary tax credit under Article 22(1)(a).
Key takeaways:
- Article 13(1) folds land-rich company shares into the SAME paragraph as immovable property -- there is no separate land-rich-shares paragraph
- Article 13(5) lets India tax gains on ANY shares of an Indian-resident company held by a Finnish resident, not only land-rich ones -- a notable departure from the OECD Model's residence-only default
- Ships and aircraft gains are taxable only in the State of the operating enterprise (Article 13(3)) -- a residence-of-enterprise rule, not an effective-management test
- The Protocol's most-favoured-nation clause does NOT cover capital gains -- it is limited to dividends, interest, royalties and FTS
- No treaty rate cap exists for capital gains; India's domestic LTCG/STCG rates apply to whatever India is entitled to tax
Capital Gains Tax Between India and Finland
Article 13 of the India-Finland DTAA, signed 15 January 2010 and effective in India from the fiscal year beginning 1 April 2011, allocates taxing rights over capital gains between the two states through six paragraphs, each covering a different category of asset. Unlike the dividend, interest and royalty articles, Article 13 does not cap the rate of tax -- it only decides which country may tax the gain. Once India has the right to tax, its ordinary domestic capital gains rates apply in full.
For Finnish investors holding Indian company shares, real estate, or business assets, Article 13 is the single most consequential provision in the treaty for exit and divestment planning. Beacon Filing's tax advisory team helps Finnish investors map a planned disposal against the correct paragraph before assuming residence-only treatment applies. See also our India-Finland DTAA complete guide and the treaty's dividend, interest and royalty rate pages for the other income types.
Article 13 Paragraph-by-Paragraph Map
Article 13(1): Immovable Property and Land-Rich Shares
"Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in paragraph 2 of Article 6 and situated in the other Contracting State or shares in a company the assets of which consist mainly of such property may be taxed in that other State." Distinctively, this treaty folds "shares in a company the assets of which consist mainly of such property" into the same paragraph as immovable property itself -- there is no separate land-rich-shares paragraph as in some other Indian treaties. Both categories are taxable in India (the situs state) without qualification.
Article 13(2): Movable Property of a PE or Fixed Base
Gains from the alienation of movable property forming part of the business property of a permanent establishment, or of movable property pertaining to a fixed base used for independent personal services, may be taxed in the State where the PE or fixed base is situated -- including gains from alienating the PE or fixed base itself.
Article 13(3): Ships and Aircraft
"Gains derived by an enterprise of a Contracting State from the alienation of ships or aircraft operated in international traffic or movable property pertaining to the operation of such ships or aircraft, shall be taxable only in that State." This is a residence-of-the-enterprise rule -- taxable only where the operating enterprise resides, not where it is effectively managed, which is the OECD Model's usual formulation. The distinction rarely matters in practice but should not be assumed to track "place of effective management" language used in other treaties.
Article 13(4): Containers
Gains from the alienation of containers (including trailers, barges and related equipment) used in international transport are taxable only in the State of the enterprise, unless the containers are used solely for transport between places within the other Contracting State.
Article 13(5): Other Shares -- India Can Tax Finnish Sellers of Indian Shares
"Gains from the alienation of shares other than those mentioned in paragraph 1 in a company which is a resident of a Contracting State may be taxed in that State." This is the treaty's most important departure from the OECD Model, which would ordinarily leave gains on shares other than land-rich ones taxable only in the seller's residence State. Under this treaty, any gain a Finnish resident realises on shares of a company resident in India -- listed or unlisted, land-rich or not -- may be taxed in India. A Finnish investor selling shares of an Indian-resident company should not assume residence-only (Finland-only) treatment merely because the company is not land-rich.
Article 13(6): Residual Clause
"Gains from the alienation of any property other than that referred to in the preceding paragraphs of this Article, shall be taxable only in the Contracting State of which the alienator is a resident." This protects gains on assets not covered by paragraphs 1 through 5 -- for example, movable personal property unconnected with a PE, or debt instruments -- as taxable only in the seller's State of residence.
Who Is Protected, and Who Is Not
Where Residence-Only Protection Applies
A Finnish resident selling ships, aircraft, or containers used in international traffic (Articles 13(3)-(4)), or "any other property" under the residual Article 13(6), is protected from Indian tax regardless of where the asset sits.
Where India Retains a Taxing Right
Immovable property in India and land-rich company shares (Article 13(1)), movable property connected with an Indian PE (Article 13(2)), and -- distinctively -- any shares of an Indian-resident company (Article 13(5)) remain taxable in India regardless of Finnish residence.
Anti-Abuse: MLI PPT and Article 27
India-Finland's status as a Covered Tax Agreement means the MLI's Principal Purpose Test, and the treaty's own Article 27 main-purpose test, both apply to capital gains relief exactly as they do to other income types -- so an arrangement structured mainly to route an Indian share sale through Finland to obtain treaty protection (where any exists) can be challenged on either ground. Given that Article 13(5) already lets India tax most Indian share gains regardless of residence, the practical scope for treaty-based capital-gains planning through Finland is narrower than for dividends, interest or royalties.
No MFN Relief for Capital Gains
The Protocol's most-favoured-nation clause is expressly limited to dividends, interest, royalties and fees for technical services under Articles 10, 11 and 12 -- it does not extend to Article 13. A lower capital-gains outcome available to a third country under a different Indian treaty cannot be imported into the India-Finland treaty through the MFN mechanism.
Domestic Capital Gains Rates That Apply Once India Has the Right to Tax
Article 13 only allocates the taxing right; it does not set a rate. Where India is entitled to tax the gain, its ordinary domestic rates apply:
- Long-term capital gains on listed equity shares (held over 12 months, securities transaction tax paid): 12.5% on gains exceeding the INR 1.25 lakh annual exemption, under section 198 of the Income-tax Act, 2025 (section 112A of the Income-tax Act, 1961).
- Short-term capital gains on listed equity shares (held 12 months or less, STT paid): 20%, under section 196 of the Income-tax Act, 2025 (section 111A of the Income-tax Act, 1961).
- Long-term capital gains on unlisted shares and other capital assets (held beyond the applicable holding period): 12.5% without indexation, under section 197 of the Income-tax Act, 2025 (section 112 of the Income-tax Act, 1961). Section 197 of the 1961 Act was the lower-withholding-certificate provision, now section 395(1) of the 2025 Act, so the same number covers different ground in the two statutes.
- Short-term capital gains on unlisted shares: taxed at slab rates for individuals, or 35% for foreign companies, rather than under the listed-equity 20% rate.
Documentation and Withholding Procedure
Tax Residency Certificate and Form 41
A Finnish seller relying on Article 13(6) residual protection (or on any narrower taxing right India does not exercise) should still hold a Tax Residency Certificate from Verohallinto and file Form 41 (formerly Form 10F) to support the claim.
Withholding on Share Transfers
Where India has the right to tax under Article 13(1), 13(2) or 13(5), the Indian buyer (or, for listed shares, the broker/custodian chain) must withhold tax under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961) at the applicable capital-gains rate, and Forms 145 and 146 must be filed before any cross-border remittance of sale proceeds.
Section 395(1) Lower Withholding Certificate
Where the actual gain (and hence tax) is lower than a flat withholding on the gross sale price would suggest, the Finnish 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) for a certificate authorising withholding on the net gain instead.
Common Disputes and Practical Notes
The most frequent point of confusion is assuming that, because many treaties protect share gains as residence-only outside a land-rich test, the India-Finland treaty does too -- Article 13(5) explicitly overrides that assumption for shares of Indian-resident companies. A second recurring issue is indirect transfers: India's domestic law can tax a non-resident's gain on transferring shares of a foreign (non-Indian) company that derives substantial value from Indian assets, under provisions separate from Article 13, which addresses direct share alienations of an Indian-resident company. Article 13 does not itself immunise indirect offshore transfers, and this domestic anti-abuse dimension should be assessed independently of the treaty analysis above. Finally, because Article 13 sets no rate cap, disputes tend to centre on the domestic computation itself -- cost of acquisition, indexation availability, and which of the LTCG/STCG provisions above applies to a particular class of shares -- rather than on treaty interpretation.
How Finland Relieves Double Taxation on Capital Gains
Where India taxes a gain under Article 13(1), 13(2) or 13(5), Finland relieves the resulting double taxation under the ordinary credit method in Article 22(1)(a): Finland allows a deduction from Finnish tax equal to the Indian tax paid on the same gain. This is different from the dividend-specific participation exemption in Article 22(1)(b), which exempts (rather than credits) dividends to a Finnish parent that directly controls at least 10% of the voting power -- that exemption is specific to dividends and does not extend to capital gains.
Practical Examples
Example 1: Finnish Company Selling Shares of an Indian Subsidiary
Nordic Tech Oy, a Finnish company, sells its entire stake in an Indian software subsidiary (not land-rich) for a gain of INR 5 crore, held for three years.
- Treaty analysis: Article 13(5) lets India tax this gain -- the Indian company's residence, not the nature of its assets, is what matters here.
- Domestic computation: As unlisted shares held long-term, the gain is taxed at 12.5% under section 197 (2025 Act)/112 (1961 Act) = INR 62.5 lakh.
- Relief in Finland: Nordic Tech Oy credits the INR 62.5 lakh Indian tax against its Finnish tax on the same gain under Article 22(1)(a).
Example 2: Finnish Investor Selling Listed Indian Shares
A Finnish portfolio investor sells listed shares of an Indian company (STT paid) held for 18 months, realising a gain of INR 20 lakh.
- Treaty analysis: Article 13(5) again permits India to tax this gain.
- Domestic computation: Long-term listed-equity gains above the INR 1.25 lakh exemption are taxed at 12.5% under section 198 (2025 Act)/112A (1961 Act).
Example 3: Indian Resident Selling Shares of a Finnish Company
An Indian resident sells shares of a Finland-resident company for a gain of EUR 100,000. Under Article 13(5) (mirrored for the Finland side), Finland may tax this gain under its own domestic rules. The Indian resident includes the full gain in Indian taxable income and claims a foreign tax credit for the Finnish tax paid, under section 159 of the Income-tax Act, 2025 (section 90 of the Income-tax Act, 1961) read with Rule 128, so the same gain is not taxed twice in full despite both countries having a taxing right over it.
Frequently Asked Questions
Can India tax a Finnish resident's gain on selling shares of an Indian company?
Generally yes. Article 13(5) of the India-Finland DTAA lets India tax gains on any shares of an Indian-resident company, whether or not the company is land-rich -- a broader source-taxing right than the OECD Model's usual residence-only rule for non-land-rich shares. Article 13(1) separately covers land-rich company shares alongside immovable property.
What capital gains are protected as taxable only in the seller's home country?
Gains on ships and aircraft in international traffic and related movable property (Article 13(3)), containers used in international transport (Article 13(4), with a narrow exception), and any other property not covered elsewhere (the Article 13(6) residual clause) are taxable only in the seller's State of residence.
Does the treaty set a reduced tax rate for capital gains?
No. Article 13 only decides which country may tax a gain; it does not cap the rate. Where India has the taxing right, India's ordinary domestic capital gains rates apply -- 12.5% for long-term gains on listed equity above the annual exemption, 20% for short-term listed-equity gains, and 12.5% for other long-term gains.
Can the Protocol's most-favoured-nation clause reduce Indian tax on capital gains?
No. The Protocol's MFN clause is expressly limited to dividends, interest, royalties and fees for technical services under Articles 10 through 12. It does not extend to Article 13, so a more favourable capital-gains outcome available to a third country under a different Indian treaty cannot be claimed here.
What documentation should a Finnish seller of Indian shares keep?
A Tax Residency Certificate from Verohallinto and Form 41 (formerly Form 10F), the acquisition and sale documentation establishing cost and holding period, and evidence of whether the underlying Indian company is land-rich. The Indian buyer must file Forms 145 and 146 before remitting sale proceeds abroad.
How does Finland relieve double taxation when India taxes a capital gain?
Finland applies the ordinary credit method under Article 22(1)(a), allowing a deduction from Finnish tax equal to the Indian tax paid on the same gain. This differs from the dividend-specific participation exemption in Article 22(1)(b), which exempts rather than credits qualifying dividends and does not apply to capital gains.
This article is for general information only and is not legal, tax, or investment advice. Confirm current rules with the relevant authority or a qualified professional — or ask our team. See our full disclaimer.
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Tax Advisory for Foreign Investors in IndiaFinland — Dividend Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| General (all shareholdings) Beneficial owner is a resident of Finland; flat rate regardless of shareholding percentage — no tiered rates and no exempt category (unlike the 15% rate under the predecessor 1983 treaty) | 10% | 20% | Article 10(2) |
Finland — Interest Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| General Beneficial owner is a resident of the other Contracting State | 10% | 20% | Article 11(2) |
| Government, local/statutory bodies and named institutions Interest paid to the State of Finland or a local authority/statutory body thereof, FINNFUND, Finnish Export Credit or FINNVERA (Finland-side); or to the Government of India or a political sub-division, local authority or statutory body thereof, the RBI, EXIM Bank of India or National Housing Bank (India-side); or on a loan guaranteed by any of these bodies | Exempt (taxable only in the recipient's State of residence) | 20% | Article 11(3) |
Finland — Royalty Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| General (copyrights, patents, trademarks, designs, know-how, ICS equipment) Beneficial owner is a resident of the other Contracting State; covers use of or right to use copyright, patents, trademarks, designs, models, secret formulas or processes, industrial/commercial/scientific equipment, and information concerning industrial, commercial or scientific experience | 10% | 20% | Article 12(2) |
| Connected to a PE or fixed base Beneficial owner carries on business in India through a PE, or performs independent personal services from a fixed base, and the right or property generating the royalty is effectively connected with it | Taxed as business profits on a net basis (Article 7); 35% foreign-company rate | 35% | Article 12(4) |
Finland — FTS Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| General Payments for managerial, technical or consultancy services, including the provision of services of technical or other personnel; excludes payments covered by Articles 14/15 (independent/dependent personal services); no 'make available' requirement | 10% | 20% | Article 12(2) |
| Connected to a PE or fixed base Beneficial owner carries on business in India through a PE, or performs independent personal services from a fixed base, and the right or services generating the fee are effectively connected with it | Taxed as business profits on a net basis (Article 7); 35% foreign-company rate | 35% | Article 12(4) |