Quick answer: Article 13 of the India-Ireland DTAA allocates capital gains taxing rights by asset type rather than setting a single rate. India can tax gains on Indian immovable property (Article 13(1)) and on shares of any company resident in India (Article 13(5)) at full domestic rates. Gains from ships and aircraft in international traffic, and all other property not covered by paragraphs 1-5, are taxed only in the seller's state of residence (Articles 13(3) and 13(6)) -- a residual protection that Indian tribunals have applied to exempt Irish-resident foreign portfolio investors on the sale of rights entitlements, which are not "shares" for Article 13(5) purposes.
Key takeaways:
- Article 13 allocates taxing rights by asset type, not a single capital gains rate
- India can tax gains on Indian immovable property under Article 13(1)
- Article 13(5) lets India tax gains on shares of ANY Indian-resident company -- broader than the OECD Model, which reserves this to residence
- Article 13(6) is a residual clause: gains outside paragraphs 1-5 are taxed only where the seller resides
- Indian tribunals have applied Article 13(6) to exempt gains on rights entitlements sold by Irish-resident FPIs
Capital Gains Tax Rate Between India and Ireland
The Double Taxation Avoidance Agreement (DTAA) between India and Ireland, signed 6 November 2000 and effective in India from 1 April 2002, addresses capital gains under Article 13. Unlike dividends, interest, and royalties, capital gains are not subject to a single withholding-rate cap. Instead, Article 13 allocates the right to tax a given gain between India and Ireland based on the nature of the asset sold, and each country's domestic rates then apply to whichever gains it is entitled to tax.
This distinction matters directly for Irish investors in Indian shares and for the growing number of Irish-domiciled funds holding Indian portfolio positions. The India-Ireland treaty's Article 13(5) is notably broader than the OECD Model default on one point -- and its Article 13(6) residual clause has already been the subject of real Indian tribunal litigation involving Irish-resident funds. See also the India-Ireland DTAA complete guide and the withholding tax rates page for India to Ireland.
Article 13's Six Categories of Capital Gains
| Paragraph | Asset | Taxing Right |
|---|---|---|
| Article 13(1) | Immovable property | Situs state (may be taxed) |
| Article 13(2) | Movable property of a PE/fixed base | PE/fixed-base state (may be taxed) |
| Article 13(3) | Ships/aircraft in international traffic | Only the enterprise's residence state |
| Article 13(4) | Shares of a land-rich company | Situs state (may be taxed) |
| Article 13(5) | Other shares in a resident company | That state of residence (source, may be taxed) |
| Article 13(6) | Residual -- anything not in 1-5 | Only the alienator's residence state |
Article 13(1): Immovable Property
Gains derived by a resident of one Contracting State from the alienation of immovable property situated in the other Contracting State may also be taxed in that other state. Gains on Indian real estate sold by an Irish resident are taxable in India at domestic rates -- 12.5% LTCG (holding over 24 months) or applicable slab/corporate rates for short-term gains.
Article 13(2): PE/Fixed-Base Movable Property
Gains from movable property forming part of the business property of a PE, or pertaining to a fixed base used for independent personal services, may be taxed in the state where the PE or fixed base is situated.
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 their operation, "shall be taxable only in that State" -- exclusively the enterprise's state of residence, not wherever the ship or aircraft happens to operate.
Article 13(4): Land-Rich Companies
Gains from the alienation of shares whose value derives directly or indirectly principally from immovable property situated in a Contracting State may be taxed in that state.
Article 13(5): Shares of a Resident Company -- the Non-Standard Rule
Gains from the alienation of shares other than those in paragraph 4, in a company resident of a Contracting State, "may be taxed in that Contracting State." This is broader than the OECD Model default, which typically reserves share gains to the seller's residence state: under this treaty, India can tax an Irish resident's gain on the sale of shares in any Indian-resident company, not only land-rich or closely-held ones.
Article 13(6): The Residual Clause
Gains from the alienation of any property other than that referred to in paragraphs 1 to 5 are taxable only in the state of which the alienator is a resident. This is the treaty's most consequential protection for Irish investors, because it reserves an exclusive right to Ireland wherever a gain does not fall within one of the specific, named categories above.
The Rights-Entitlement Case Law
In Vanguard Emerging Markets Stock Index Fund v. ACIT (ITAT Mumbai, "I" Bench, order dated 23 May 2025), the Tribunal considered whether gains on the sale of rights entitlements by an Irish-resident foreign portfolio investor fell within Article 13(5) (as "shares") or Article 13(6) (the residual clause). It held that a rights entitlement -- the tradeable right to subscribe for new shares in a rights issue -- is not itself a "share" for Article 13(5) purposes, so the gain fell into the Article 13(6) residual category and was taxable only in Ireland, the seller's state of residence. This body of case law is specific to how "shares" is defined and does not extend Article 13(6) protection to an actual sale of company shares, which remains squarely within Article 13(5).
Who Qualifies for Treaty Protection
Tax Residency Requirement
The person claiming treaty benefit must be a tax resident of Ireland under Article 4, evidenced by a Tax Residency Certificate from the Irish Revenue Commissioners.
Anti-Abuse: MLI Principal Purpose Test
The India-Ireland DTAA is a Covered Tax Agreement under the MLI, so the Principal Purpose Test can deny a capital gains benefit -- including Article 13(6) residual protection -- where obtaining that benefit was a principal purpose of the arrangement. India's domestic GAAR, under section 159(6) of the Income-tax Act, 2025 (section 90(2A) of the Income-tax Act, 1961), applies notwithstanding the treaty-more-beneficial rule in section 159(4), and can independently override treaty protection for an impermissible avoidance arrangement.
Indirect Transfer and Domestic Law Overlay
Section 9(2)(d) of the Income-tax Act, 2025 (section 9(1)(i) of the Income-tax Act, 1961) deems income accruing through the transfer of a capital asset situated in India to accrue or arise in India, which brings gains on shares of an Indian company into the Indian tax net. India's indirect-transfer provisions at section 9(10) separately deem a share of a foreign company to be situated in India where it derives its value substantially from Indian assets -- tested at more than INR 10 crore and at least 50% of the entity's total asset value. Article 13(6) does not automatically shelter every offshore structure from this domestic rule.
Domestic Rates Applicable Where India Has the Taxing Right
Where Article 13 allocates the taxing right to India (immovable property, land-rich shares, or shares of an Indian-resident company under Article 13(5)), India's own domestic rates determine the tax: 12.5% LTCG on listed shares for gains above INR 1.25 lakh in a year (holding over 12 months) under section 198 of the Income-tax Act, 2025 (section 112A of the Income-tax Act, 1961); 20% STCG on listed shares (holding up to 12 months) under section 196 of the Income-tax Act, 2025 (section 111A of the Income-tax Act, 1961); and 12.5% LTCG on unlisted shares (holding over 24 months) under section 197 of the Income-tax Act, 2025 (section 112 of the Income-tax Act, 1961).
Documentation and Withholding Procedure
Tax Residency Certificate and Form 41
A TRC from the Irish Revenue Commissioners is required under section 159(8) of the Income-tax Act, 2025 (section 90(4) of the Income-tax Act, 1961), together with Form 41 (formerly Form 10F) filed electronically where the TRC lacks the prescribed particulars.
Section 393(2) Withholding on the Buyer
Where an Indian buyer purchases shares or property from an Irish resident, section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961) requires the buyer to deduct tax at source on the capital gains component before remitting proceeds, supported by Forms 145 and 146 for the remittance itself.
Lower Withholding Certificate
An Irish seller expecting a lower actual liability -- for example, because Article 13(6) applies, or because losses offset the gain -- can apply under section 395(1) or 395(2) of the Income-tax Act, 2025 (sections 197, 195(2) and 195(3) of the Income-tax Act, 1961) for a certificate authorising reduced or nil withholding.
Advance Ruling for Complex Structures
Where a transaction's characterisation under Article 13 is genuinely uncertain -- for instance, whether an instrument qualifies as a "share" for Article 13(5) or falls into the Article 13(6) residual category -- an Irish investor can apply to the Board for Advance Rulings under section 383 of the Income-tax Act, 2025 (section 245Q of the Income-tax Act, 1961) for certainty on the tax treatment before completing the sale.
Practical Examples and Calculations
Example 1: Irish Company Selling Shares of an Indian Subsidiary
Kildare Holdings Ltd, an Irish company, sells its 100% stake in an Indian private company for INR 8 crore, against an original cost of INR 3 crore (held 3 years).
- Gain: INR 5 crore, long-term (unlisted shares, held over 24 months).
- India's taxing right: Yes -- Article 13(5) allows India to tax gains on shares of an Indian-resident company.
- Indian tax: 12.5% LTCG = INR 62.5 lakh, plus applicable surcharge and cess.
- Ireland relief: Ireland provides a credit for the Indian tax paid against the Irish tax on the same gain.
Example 2: Irish FPI Selling Rights Entitlements
An Irish-resident foreign portfolio investor is allotted rights entitlements in an Indian rights issue and sells them on the stock exchange for a gain of INR 40 lakh, without subscribing for the underlying shares.
- Characterisation: A rights entitlement is not a "share" for Article 13(5), so the gain falls under the Article 13(6) residual clause.
- India's taxing right: None -- Article 13(6) reserves the gain exclusively to Ireland, the investor's state of residence.
- Outcome: Following Vanguard Emerging Markets Stock Index Fund, the gain is not taxable in India, subject to the arrangement having genuine commercial substance under the MLI's Principal Purpose Test and India's GAAR.
Frequently Asked Questions
How are capital gains taxed under the India-Ireland DTAA?
Article 13 allocates taxing rights by asset type rather than fixing a single rate. India can tax gains on Indian immovable property and on shares of any Indian-resident company. Ships, aircraft, and all other property not covered by the specific categories are taxed only in the seller's state of residence.
Can India tax an Irish resident's gain on shares of an Indian company?
Yes. Article 13(5) allows India to tax gains on shares of any company resident in India, applying India's domestic rates -- 12.5% LTCG on listed shares above INR 1.25 lakh, 20% STCG on listed shares, and 12.5% LTCG on unlisted shares.
Are gains on rights entitlements taxable in India for Irish investors?
Generally no. An Indian tribunal held that rights entitlements are not "shares" for Article 13(5), so gains on their sale fall into the Article 13(6) residual clause and are taxable only in Ireland, subject to genuine commercial substance under the MLI's Principal Purpose Test and India's GAAR.
Does Article 13(6) protect all gains not otherwise listed?
It reserves such gains exclusively to the seller's state of residence, but India's domestic GAAR under section 159(6) of the Income-tax Act, 2025 can still override this protection where an arrangement is an impermissible avoidance arrangement, and India's indirect-transfer rules may separately apply to offshore share transfers.
What documentation does an Irish seller need?
A Tax Residency Certificate from the Irish Revenue Commissioners, Form 41 filed electronically, and, for a lower withholding rate, an application under section 395 of the Income-tax Act, 2025. The Indian buyer must file Forms 145 and 146 for the remittance.
Does the MLI affect capital gains taxation under this treaty?
Yes. The India-Ireland DTAA is a Covered Tax Agreement, so the Principal Purpose Test can deny Article 13 benefits, including the Article 13(6) residual protection, where obtaining the benefit was a principal purpose of the arrangement, in addition to India's separate domestic GAAR override.
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 IndiaIreland — Dividend Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| General (all shareholdings) Beneficial owner is a resident of the other Contracting State; single flat rate under Article 10(2), no shareholding tiers and no exempt category | 10% | 20% | Article 10(2) |
Ireland — 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; a narrower 0% applies to government and named-institution interest under Article 11(3) | 10% | 20% | Article 11(2) |
Ireland — Royalty Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| General Beneficial owner is a resident of the other Contracting State; royalties and FTS share a single combined article | 10% | 20% | Article 12(2) |
Ireland — FTS Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| General Fees for technical services share Article 12 with royalties; beneficial owner is a resident of the other Contracting State; no make-available requirement | 10% | 20% | Article 12(2) |