Capital Gains Tax Between India and Poland Under DTAA

Quick answer: Article 14 of the India-Poland DTAA does not set a capital gains rate -- it allocates which State may tax a gain, and each State then applies its own domestic rate. The treaty's signature feature is Article 14(5): gains from shares of any company resident in a Contracting State "may be taxed in that State," with no participation threshold and no requirement that the company be property-rich. This means a Polish resident selling shares of an Indian company is taxable in India, full stop -- broader than the "land-rich company" tests many other Indian treaties use. Only gains on ships/aircraft (Article 14(3), taxable solely in the alienator's residence State) and truly residual, non-share property (Article 14(6)) escape Indian source taxation. India's domestic rates -- 12.5% long-term, 20% short-term on listed equity -- then apply to the taxable gain.

Key takeaways:

• Article 14(5) gives India (or Poland) taxing rights over ALL share gains in a company resident there -- no participation threshold, no land-rich test
• Immovable property gains: situs-State taxation (Article 14(1))
• Ships/aircraft gains: taxable only in the alienator's State of residence (Article 14(3)) -- not the place of effective management
• Land-rich shares get an independent basis for source taxation under Article 14(4), on top of the broader 14(5) rule
• Only genuinely residual, non-share property (Article 14(6)) is reserved exclusively to the seller's residence State

Capital Gains Tax Between India and Poland

Article 14 of the India-Poland DTAA allocates taxing rights over capital gains between the two States by reference to the type of asset alienated -- it is an allocation rule, not a rate-setting provision. Once a State's taxing right is established under Article 14, that State's own domestic capital gains rules and rates apply. For gains taxable in India, this means India's Income-tax Act, 2025 rates and computation rules govern; for gains reserved to Poland, Polish domestic tax law applies.

The treaty's most consequential feature for Polish investors is Article 14(5): gains on shares of a company resident in India (or Poland) "may be taxed in that State," full stop -- there is no minimum shareholding percentage and no requirement that the company derive its value principally from immovable property. This is broader than many of India's other treaties (for example, those that reserve source taxation to land-rich companies or to holdings above a stated threshold): under the India-Poland treaty, a Polish resident selling even a small minority stake in an Indian company remains within India's taxing right. Our tax advisory team helps Polish investors model the Indian tax cost of an exit well before a sale is negotiated.

See our India-Poland DTAA complete guide for the treaty's full text, and withholding tax rates: India to Poland for dividend, interest, and royalty/FTS rates.

Article 14's Paragraph Map: Asset by Asset

Article 14(1): Immovable Property

"Gains derived by a resident of a Contracting State from the alienation of immovable property, referred to in article 6, and situated in the other Contracting State may be taxed in that other State." Immovable property is defined by cross-reference to Article 6(2), which covers land-based assets, agricultural and forestry rights, mineral-extraction rights, and usufruct interests -- and expressly excludes ships, boats, and aircraft.

Article 14(2): Movable Property Connected to a PE or Fixed Base

Gains on movable business property forming part of a permanent establishment, or pertaining to a fixed base used for independent personal services, "including such gains from the alienation of such a permanent establishment (alone or together with the whole enterprise) or of such fixed base, may be taxed in that other State" -- i.e., in the State where the PE or fixed base is situated.

Article 14(3): Ships and Aircraft

"Gains 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 the Contracting State of which the alienator is a resident." Note the trigger here is the alienator's residence, not the place of effective management of the airline or shipping enterprise -- a distinction that matters where residence and effective management diverge.

Article 14(4): Land-Rich Shares

"Gains from the alienation of shares of a company the property of which consists directly or indirectly principally of immovable property situated in a Contracting State may be taxed in that State." This is the familiar land-rich-company test found in many treaties. Paragraph 4 is the one part of Article 14 the 2013 Protocol substituted, effective in India from 1 April 2015; the broader paragraph 5 rule below is original 1989 treaty text.

Article 14(5): All Other Shares -- the Treaty's Signature Rule

"Gains from the alienation of shares other than those mentioned in paragraph 4 in a company which is a resident of a Contracting State may be taxed in that State." Read together with paragraph 4, this means every share sale in a company resident in India or Poland falls within one of the two paragraphs -- land-rich companies under 14(4), everything else under 14(5) -- and both give the company's State of residence a taxing right. There is no carve-out for small, non-controlling, or non-land-rich holdings.

Article 14(6): Residual Property

"Gains from the alienation of any property other than that mentioned in paragraphs 1, 2, 3, 4 and 5 shall be taxable only in the Contracting State of which the alienator is a resident." This residual clause -- covering things like goodwill, partnership interests not caught above, or intellectual property rights sold outright -- is the only category reserved exclusively to the seller's home State for gains connected to India or Poland.

Who Qualifies for Treaty Protection on Capital Gains

Tax Residency Requirement

Treaty protection under Article 14 requires the seller to be a genuine resident of Poland (or India) under Article 4, using the incorporation/effective-management test for companies and the tie-breaker cascade in Article 4(2) for individuals.

Beneficial Ownership and Substance

Article 14 does not contain its own explicit beneficial-ownership test (unlike Articles 11, 12, and 13), but the treaty's bilateral Limitation of Benefits clause at Article 28A still applies: benefits can be denied to a non-individual resident, or to a transaction, where obtaining a treaty benefit -- including favourable capital gains treatment -- was a main purpose. The MLI's Principal Purpose Test, effective for India from 1 April 2020, applies independently on top of this.

India's Domestic Law Is What Actually Taxes the Gain

Because Article 14 only allocates the right to tax, not a rate, a Polish resident selling Indian company shares under Article 14(4) or 14(5) is taxed exactly as any non-resident seller would be under India's domestic law -- there is no treaty-conferred discount on the rate itself, only on whether India may tax at all (which, for share sales, it almost always may under this particular treaty).

Domestic Indian Capital Gains Rates

Where India has the taxing right under Article 14, the following domestic rates apply to the taxable gain:

• Short-term capital gains on listed equity shares (held 12 months or less): 20%, under section 196 of the Income-tax Act, 2025 (section 111A of the Income-tax Act, 1961).
• Long-term capital gains on listed equity shares (held more than 12 months), on gains above the ₹1.25 lakh annual exemption: 12.5%, under section 198 of the Income-tax Act, 2025 (section 112A of the Income-tax Act, 1961).
• Long-term capital gains on unlisted shares (held more than 24 months) and other long-term capital assets: 12.5%, under section 197 -- Long-term capital gains -- of the Income-tax Act, 2025 (section 112 of the Income-tax Act, 1961).

Surcharge and health & education cess apply on top of these headline rates for non-residents, as with other income categories, since Article 14 does not cap the domestic rate the way Articles 11-13 cap withholding on dividends, interest, and royalties/FTS.

Documentation Required for Capital Gains Treaty Claims

Tax Residency Certificate (TRC)

A Tax Residency Certificate from the Krajowa Administracja Skarbowa (Polish National Revenue Administration), required under section 159(8) of the Income-tax Act, 2025 (section 90(4) of the Income-tax Act, 1961) to invoke any treaty position at all.

Form 41 (formerly Form 10F)

Form 41, filed electronically, supplementing the TRC where it lacks prescribed particulars.

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

The Indian buyer remitting sale proceeds must file Form 145, and obtain Form 146 from a Chartered Accountant for remittances exceeding INR 5 lakh, before the funds leave India.

Withholding and Assessment Procedure

TDS on Share Transfers

A buyer purchasing shares from a non-resident seller must deduct tax at source on the sum chargeable to tax under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961), applying the "rates in force" -- i.e., India's domestic capital gains rates set out above, since Article 14 provides no lower ceiling.

Section 395: Lower or Nil Withholding Certificate

Because withholding at the gross sale-consideration level would over-tax a gain (the taxable base is the gain, not the full price), a Polish seller typically applies for a certificate determining the appropriate withholding amount or rate under section 395 of the Income-tax Act, 2025 (sections 195(2), 195(3) and 197 of the Income-tax Act, 1961), so that TDS is computed on the actual gain rather than the entire sale proceeds.

Advance Ruling

For significant, structured transactions, a Polish investor may also seek certainty in advance on the Indian tax treatment of a proposed share sale through an application for an advance ruling.

Common Disputes and Compliance Points

Indirect Transfers

India's indirect-transfer provisions -- originally enacted at section 9(1)(i), Explanation 5 of the Income-tax Act, 1961, and carried into section 9 of the Income-tax Act, 2025 from 1 April 2026 -- can tax gains on the transfer of shares of a foreign (e.g. Polish) holding company where those shares derive substantial value from underlying Indian assets. Article 14(5)'s broad share-gains rule does not obviously extend to a sale of shares in a Polish holding entity itself (as opposed to shares of the Indian company directly), so an indirect-transfer analysis under domestic law, not the treaty, is usually the relevant test for such structures.

GAAR as the Backstop

Where a transaction is structured mainly to shift a share sale outside Article 14's reach -- for instance, interposing entities to argue the disposed shares are not "in a company which is a resident of a Contracting State" -- India's domestic General Anti-Avoidance Rules can override the arrangement's form, in addition to the treaty's own Article 28A LOB test and the MLI PPT.

Surcharge and Cess

Unlike the withholding articles, Article 14 was never intended as a rate ceiling, so surcharge and health & education cess routinely apply in full on top of the 12.5%/20% domestic capital gains rates for non-resident sellers, without the "treaty rate is inclusive" argument that sometimes arises for dividends, interest, and royalties/FTS.

Practical Examples and Calculations

Example 1: Polish Company Selling Shares of an Indian Subsidiary

Polska Sp. z o.o. sells its entire stake in an Indian private limited company (not land-rich) for a gain of INR 5 crore, held for three years.

• Treaty position: Article 14(5) gives India the right to tax this gain because the company is resident in India -- there is no exemption for non-land-rich companies under this treaty.
• Domestic tax: As an unlisted share held over 24 months, the gain is long-term, taxed at 12.5% under section 197 of the Income-tax Act, 2025 (section 112 of the Income-tax Act, 1961) = INR 62.5 lakh, plus surcharge and cess.

Example 2: Polish Investor Selling Listed Indian Shares

A Polish portfolio investor sells listed shares of an Indian company for a short-term gain (held eight months) of INR 20 lakh.

• Treaty position: Taxable in India under Article 14(5) (or 14(4) if the company happens to be land-rich).
• Domestic tax: Short-term capital gains on listed equity are taxed at 20% under section 196 of the Income-tax Act, 2025 (section 111A of the Income-tax Act, 1961) = INR 4 lakh, plus surcharge and cess.

Example 3: Ships Operated in International Traffic

A Polish shipping company, resident in Poland, sells a vessel operated in international traffic that has called at Indian ports.

• Treaty position: Article 14(3) reserves this gain exclusively to Poland, the alienator's State of residence -- India has no taxing right regardless of where the vessel operated, because the treaty's test is the seller's residence, not the place of effective management or the routes served.

Frequently Asked Questions

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

Article 14 allocates taxing rights by asset type rather than setting a rate. Immovable property is taxed where situated; PE-connected movable property is taxed where the PE is; ships/aircraft gains are taxed only in the alienator's residence State; and gains on shares of a company resident in India or Poland -- land-rich or not -- may be taxed in that company's State of residence under Articles 14(4) and 14(5).

Can India tax a Polish resident on gains from selling shares of any Indian company?

Yes. Under Article 14(5), gains from shares of a company resident in India may be taxed in India regardless of shareholding percentage or whether the company is property-rich -- broader than many of India's other treaties, which reserve source taxation to land-rich companies or holdings above a stated threshold.

Are ship and aircraft gains taxed differently under this treaty?

Yes. Article 14(3) reserves gains on ships or aircraft operated in international traffic exclusively to the State of the alienator's residence -- not the state of effective management, which is the trigger used in some other treaties.

What Indian domestic tax rates apply to capital gains taxable under Article 14?

Where India has the taxing right, its domestic rates apply: 20% on short-term gains on listed equity (section 196 of the Income-tax Act, 2025), and 12.5% on long-term gains on listed shares above the ₹1.25 lakh exemption (section 198) or on unlisted shares held over 24 months (section 197), plus applicable surcharge and cess.

What documentation does a Polish seller need to support a capital gains treaty position?

A Tax Residency Certificate from the Krajowa Administracja Skarbowa, electronically filed Form 41, and typically an application under section 395 of the Income-tax Act, 2025 for a certificate fixing the correct withholding amount on the gain rather than the gross sale proceeds. The buyer must also file Forms 145 and 146 for the remittance.

Does Article 14(6) protect all non-share gains from Indian tax?

Article 14(6) reserves gains on residual, non-share property (not covered by paragraphs 1 through 5) exclusively to the seller's State of residence. However, India's domestic indirect-transfer provisions and GAAR can still apply to structures -- such as offshore transfers of entities holding Indian assets -- that are designed to fall within this residual category primarily for tax reasons.