Capital Gains Tax Between India and South Africa Under DTAA

Quick answer: Article 13 of the India-South Africa DTAA allocates capital gains taxing rights by asset type rather than fixing one rate. Immovable property and PE-connected gains are taxable where situated; ships/aircraft gains are taxable only in the enterprise's own State; gains on shares of an immovable-property-rich company are taxable where the property sits; and — notably — Article 13(5) lets India tax a South African resident's gains on any shares of an Indian-resident company, not only property-rich ones. Only the residual Article 13(6) category is taxable exclusively in the seller's residence State.

Key takeaways:

• Article 13 has six paragraphs allocating taxing rights by asset type, not a single capital gains rate
• Article 13(5) gives India (or South Africa) a source-State right to tax gains on any shares of a resident company — broader than the land-rich-only rule in many of India's other treaties
• Ships/aircraft gains (Article 13(3)) are taxable only in the enterprise's own State, not by place-of-effective-management
• India applies its domestic LTCG/STCG rates once it has the taxing right — 12.5% LTCG on listed shares above INR 1.25 lakh, 20% STCG on listed shares, 12.5% LTCG on unlisted shares
• Only the Article 13(6) residual category — property not covered by paragraphs 1–5 — is taxable exclusively in the seller's State of residence

Capital Gains Tax Between India and South Africa

Unlike dividends, interest, and royalties/FTS, where the India-South Africa DTAA caps the withholding rate at a fixed percentage, capital gains under Article 13 work differently: the treaty allocates the right to tax between India and South Africa depending on what is being sold, and each country's own domestic rate then applies once it has that right. Getting the asset classification right under Article 13 therefore matters more here than memorising a single percentage.

The India-South Africa Double Taxation Avoidance Agreement (DTAA) was signed at New Delhi on 4 December 1996, together with a Protocol that forms an integral part of the Agreement, and entered into force on 28 November 1997 under Article 28, notified in India by GSR 198(E) dated 21 April 1998. The treaty follows the UN Model Tax Convention, which tends to preserve greater source-State taxing rights than the OECD Model — consistent with the bilateral relationship between two developing, BRICS-partner economies.

A Protocol amending the Agreement was signed at Pretoria on 26 July 2013 and entered into force on 26 November 2014 (notified by the CBDT vide Notification No. 10/2015 / S.O. 316(E) dated 2 February 2015, with retrospective effect from 26 November 2014). This 2013 Protocol replaced Article 25 (Exchange of Information) with the current OECD-standard text, extending information exchange to taxes of every kind and removing bank-secrecy as a ground to refuse information. It made no change to any withholding rate — the rates below have never been amended since 1996.

Both India and South Africa have ratified the Multilateral Instrument (MLI): India deposited its instrument on 25 June 2019 (in force 1 October 2019) and South Africa on 30 September 2022 (in force 1 January 2023). The India-South Africa DTAA is a matched Covered Tax Agreement, and the South African Revenue Service (SARS) has published a synthesised text of the treaty as modified by the MLI, with the Principal Purpose Test (PPT) taking effect for withholding taxes from 1 January 2023 and for other taxes from 1 July 2023. This treaty carries no most-favoured-nation (MFN) clause — unlike some of India's other treaties, no protocol grants an automatic reduction if India later agrees a lower rate with a third OECD country.

Article 13: Capital Gains 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 and situated in the other Contracting State may be taxed in that other State." A South African resident selling Indian real estate is taxable in India at India's domestic rates; the reverse applies for an Indian resident selling South African property.

Article 13(2): PE-Connected Movable Property

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 that PE or fixed base is situated — including gains from alienating the PE or fixed base itself, alone or with the whole enterprise.

Article 13(3): Ships and Aircraft

"Gains of an enterprise of a Contracting State from the alienation of a ship 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 treaty ties the exclusive taxing right to the enterprise's own State, not to a place-of-effective-management test used in some other Indian treaties — a distinction that matters for shipping and aviation groups structured across multiple jurisdictions.

Article 13(4): Shares of an Immovable-Property-Rich Company

"Gains from the alienation of shares or similar rights in a company, or of an interest in a partnership, trust or estate, the assets of which consist principally of immovable property situated in a Contracting State, may be taxed in that State." The treaty does not define "principally"; it is generally understood as more than half of the entity's asset value, but each transaction should be tested on its facts.

Article 13(5): Other Shares — the Broadest Provision in This Treaty

"Gains derived by a resident of a Contracting State from the sale, exchange or other disposition, directly or indirectly, of shares or similar rights in a company, other than those mentioned in paragraph 4, which is a resident of the other Contracting State, may be taxed in that other State." This is a notably wide source-State taxing right: it is not limited to property-rich companies. A South African resident selling shares of an Indian-resident company — listed or unlisted, property-rich or not — can be taxed by India on the gain under this paragraph alone, a broader rule than the residence-only treatment many of India's other DTAAs give to ordinary share sales.

Article 13(6): Residual Clause

"Gains from the alienation of any property other than that referred to in the preceding paragraphs, shall be taxable only in the Contracting State of which the alienator is a resident." This exclusive residence-State right covers gains not caught by paragraphs 1 through 5 — for example, intangible assets, goodwill, or partnership interests not falling within paragraph 4 or 5.

Domestic Indian Capital Gains Rates (Once India Has the Taxing Right)

Where Article 13 gives India the right to tax a South African resident's gain, India's own domestic capital gains rates apply — the treaty does not fix a percentage. Following the Finance (No.2) Act 2024 changes (effective 23 July 2024):

• Listed shares, short-term (held ≤12 months): 20% under section 196 of the Income-tax Act, 2025 (section 111A of the Income-tax Act, 1961).
• Listed shares, long-term (held >12 months): 12.5% on gains above INR 1.25 lakh per year, under section 198 of the Income-tax Act, 2025 (section 112A of the Income-tax Act, 1961).
• Unlisted shares, long-term (held >24 months): 12.5% without indexation, under section 197 of the Income-tax Act, 2025 (section 112 of the Income-tax Act, 1961) — this new section 197 is the general long-term capital gains provision and should not be confused with the lower/nil withholding certificate, which sits at section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961) under the collision described in the withholding section below.
• Immovable property: the same 12.5% LTCG (over 24 months) or applicable slab-rate STCG treatment applies.

Who Qualifies for Treaty Analysis

Tax Residency

Article 13's allocation rules depend on the seller being a resident of India or South Africa under Article 4 — evidenced for a South African resident by a Tax Residency Certificate from SARS.

Anti-Abuse Rules: MLI PPT and GAAR

As a matched Covered Tax Agreement, treaty protection under Article 13 — including the residual Article 13(6) exclusive residence right — is subject to the MLI's Principal Purpose Test from 1 January 2023 and to India's domestic GAAR, which can override even the treaty's more-beneficial rule under section 159(4) of the Income-tax Act, 2025 (section 90(2) of the Income-tax Act, 1961) once section 159(6) (section 90(2A) of the Income-tax Act, 1961) is engaged. A share sale routed through South Africa with no commercial substance, structured mainly to invoke Article 13(6) instead of Article 13(5), is a natural target for both tests.

Documentation and Withholding Procedure

A South African seller claiming that a gain is taxable only in South Africa (Article 13(6)) or seeking any treaty-based relief must provide a TRC from SARS under section 159(8) of the Income-tax Act, 2025 (section 90(4) of the Income-tax Act, 1961), and generally Form 41 (formerly Form 10F) if the TRC lacks prescribed particulars. Where India has the taxing right under Article 13(1), (2), (4) or (5), the Indian buyer must withhold tax at source under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961), file Form 145 (formerly Form 15CA) before remittance, and obtain a Chartered Accountant's Form 146 (formerly Form 15CB) for remittances exceeding INR 5 lakh. The South African seller may separately apply to the Assessing Officer for a lower or nil withholding certificate under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961) where the actual gain is smaller than the sale consideration might suggest; the Indian buyer's own route for a lower-deduction determination is section 395(2) of the Income-tax Act, 2025 (section 195(2) and (3) of the Income-tax Act, 1961).

Practical Considerations

The single most consequential feature of this treaty's capital gains article is Article 13(5): because it reaches any shares of a resident company — not only property-rich ones — a South African resident cannot assume that selling shares of a non-property-rich Indian company falls into the residence-only Article 13(6) residual clause. It does not; Article 13(5) applies first, and India retains the taxing right. This is a meaningfully different outcome from treaties where ordinary share gains fall to the seller's residence State by default, so South African investors structuring an exit from an Indian holding should model Indian capital gains tax into the transaction from the start rather than assuming Article 13(6) protection.

Practical Example

Ubuntu Capital (Pty) Ltd, a South African investment company, sells its entire unlisted shareholding in an Indian technology company for INR 8 crore, against an original cost of INR 3 crore, after holding the shares for three years. The Indian company's assets are not predominantly immovable property.

• Capital gain: INR 5 crore, long-term (held over 24 months for unlisted shares).
• India's right to tax: Yes — under Article 13(5), because Ubuntu Capital is selling shares of a company resident in India, regardless of whether the company is property-rich.
• Indian tax: 12.5% LTCG (without indexation) = INR 62.5 lakh, plus applicable surcharge and cess.
• South African relief: Ubuntu Capital claims a credit for the Indian tax paid against its South African tax liability on the same gain, under South Africa's domestic double-tax relief provisions.

For the withholding rates on dividends, interest, royalties and FTS under this treaty, see our withholding tax rates page and the India-South Africa DTAA guide. Beacon Filing's tax advisory services can help structure cross-border share transactions to manage Indian capital gains exposure.

Frequently Asked Questions

How are capital gains taxed under the India-South Africa DTAA?

Article 13 allocates the right to tax by asset type rather than fixing a rate: immovable property and PE-connected gains are taxable where situated, ships/aircraft gains only in the enterprise's own State, property-rich company shares where the property sits, and — under Article 13(5) — any other shares of a resident company in that company's State of residence. Only the residual Article 13(6) category is taxed solely in the seller's residence State.

Can India tax a South African resident on gains from selling shares of an Indian company?

Yes, in almost all cases. Article 13(5) gives India a source-State right to tax gains on any shares of an Indian-resident company sold by a South African resident, not only shares of property-rich companies. This is broader than the residence-only rule found in several of India's other treaties.

What are India's domestic capital gains rates once it has the taxing right?

Following the Finance (No.2) Act 2024: 20% short-term capital gains on listed shares held up to 12 months under section 196 of the Income-tax Act, 2025 (section 111A of the Income-tax Act, 1961), 12.5% long-term capital gains on listed shares above INR 1.25 lakh per year under section 198 of the Income-tax Act, 2025 (section 112A of the Income-tax Act, 1961), and 12.5% long-term capital gains on unlisted shares held over 24 months, without indexation, under section 197 of the Income-tax Act, 2025 (section 112 of the Income-tax Act, 1961).

How are gains on ships and aircraft treated differently under this treaty?

Article 13(3) taxes gains from ships or aircraft operated in international traffic only in the State of the enterprise itself, not by a place-of-effective-management test. This differs from the wording used in some of India's other treaties and matters for internationally structured shipping and aviation groups.

Does the residual Article 13(6) clause protect all gains not otherwise mentioned?

Article 13(6) gives the seller's residence State the exclusive right to tax gains not covered by paragraphs 1 to 5 — for example certain intangible assets or partnership interests not tied to property. It does not cover ordinary share sales, which are captured earlier by Article 13(4) or, more often, the broad Article 13(5).

Does the MLI affect capital gains taxation under this treaty?

Yes. As a matched Covered Tax Agreement, the MLI's Principal Purpose Test applies from 1 January 2023, alongside India's domestic GAAR, which can override even the treaty's more-beneficial rule for arrangements found to be impermissible avoidance structures lacking genuine commercial substance.