Capital Gains Tax Between India and Switzerland Under DTAA

Quick answer: Under Article 13(5) of the India-Switzerland DTAA (signed 2 November 1994, in force 29 December 1994 and effective in India from 1 April 1995, amended by the 2000 and 2010 protocols), gains on shares are taxable only in the seller's residence state as a starting point — but Article 13(5)(b) expressly preserves India's right to tax gains from the alienation of shares in a company resident in India. A Swiss resident selling Indian company shares therefore pays Indian capital gains tax at domestic rates (12.5% LTCG on listed shares), and India — unusually — allows a credit for any Swiss tax paid on those gains under Article 23(1)(b). Gains on Indian immovable property and on shares of property-rich companies are likewise taxable in India under Articles 13(1) and 13(4).

Key takeaways:

• Signed 2 November 1994, in force 29 December 1994, effective in India from 1 April 1995; amended by protocols notified in 2001 and 2011; capital gains under Article 13.
• Article 13(5)(b): India may tax gains on shares of Indian-resident companies — there is no Mauritius-style share-gains exemption in this treaty.
• India allows a credit for Swiss tax on those share gains (Article 23(1)(b)) — a reverse of the usual credit direction; for Swiss private investors the Swiss tax is typically nil, so full Indian tax applies.
• Switzerland exempts the gains with progression only where actual Indian taxation is demonstrated (Article 23(2)(a)).
• Immovable property gains and property-rich company shares stay taxable in India; only the Article 13(6) residual (non-share property, and shares of third-country companies) is residence-only.

Capital Gains Tax Rate Between India and Switzerland

The India-Switzerland Double Taxation Avoidance Agreement (DTAA), signed on 2 November 1994, in force from 29 December 1994 and effective in India from 1 April 1995, with amending protocols notified in 2001 and 2011, contains a capital gains article that is notably different from most of India's treaties. Article 13 governs the taxation of capital gains between the two countries. Its share-gains rule in Article 13(5) starts from residence-state taxation — but sub-paragraph (b) expressly provides that, notwithstanding that rule, India may tax gains from the alienation of shares in a company which is a resident of India.

This structure matters because it means a Swiss resident selling shares of an Indian company is taxable in India at India's domestic capital gains rates — the treaty offers no Mauritius- or Singapore-grandfathering-style share-gains exemption. The counterweight is an unusual reverse credit: where India taxes such gains, India allows a deduction for the income tax paid in Switzerland on the same gains under Article 23(1)(b). Since Swiss private investors typically pay no Swiss capital gains tax, that credit is usually nil and the full Indian tax stands. Only gains on property falling into the Article 13(6) residual — assets other than those in paragraphs 1 to 5, such as shares of a company resident in neither state — are taxable exclusively in the seller's residence state.

The DTAA follows the OECD Model convention, which typically allocates broader taxing rights to the residence state on capital gains compared to the UN Model used in many of India's treaties with developing nations. This OECD-model approach, combined with Switzerland's favourable domestic capital gains regime, makes the India-Switzerland capital gains corridor one of the most analysed in international tax practice.

Treaty Rate vs Domestic Rate: Detailed Comparison

Like most DTAAs, the capital gains article does not prescribe specific withholding rates. Instead, it allocates taxing rights between India and Switzerland for different categories of capital gains.

India's Domestic Capital Gains Tax Rates

Under India's domestic law, the capital gains tax rates for non-residents are:

• Short-term capital gains (listed securities): 20% under Section 196 of the Income-tax Act, 2025 (section 111A of the Income-tax Act, 1961) (holding period under 12 months)
• Long-term capital gains (listed securities): 12.5% under Section 198 of the Income-tax Act, 2025 (section 112A of the Income-tax Act, 1961) on gains exceeding INR 1.25 lakh (holding period 12 months or more), without indexation
• Short-term capital gains (unlisted shares): slab rates for non-resident individuals; 35% for foreign companies
• Long-term capital gains (unlisted shares): 12.5% under Section 197 of the Income-tax Act, 2025 (section 112 of the Income-tax Act, 1961) without indexation (rate introduced by the Finance (No.2) Act 2024, from 23 July 2024)
• Immovable property: 12.5% without indexation (long-term, from 23 July 2024) or slab rates (short-term)

Switzerland's Capital Gains Position

Switzerland does not levy capital gains tax on private investors selling listed securities. Gains from the sale of shares held as part of private wealth management are tax-exempt, provided the investor is not classified as a professional securities trader. The Swiss tax authorities classify someone as a private investor if they: hold securities for at least six months, keep annual transaction volume below five times their portfolio value, do not rely on investment returns for more than 50% of gross income, and do not use borrowed funds for investments. Corporate investors and professional traders in Switzerland are subject to regular income/profits tax on capital gains.

Treaty Allocation Summary

Who Qualifies for Treaty Benefits on Capital Gains

To benefit from the capital gains provisions — the Article 13(6) residual rule, the Article 23(1)(b) credit for Swiss tax, and the Swiss-side relief — the following conditions must be met:

Tax Residency in Switzerland

The person must be a tax resident of Switzerland under Swiss domestic law and the treaty's tie-breaker provisions. A Tax Residency Certificate (TRC) issued by the relevant Swiss cantonal tax authority is mandatory under Section 159(8) of the Income-tax Act, 2025 (section 90(4) of the Income-tax Act, 1961).

Beneficial Ownership

While the capital gains article does not contain a separate beneficial ownership test, the overall treaty framework and anti-avoidance measures require that the person claiming treaty benefits is the genuine economic owner of the asset being disposed of, not a mere nominee or conduit.

Private Investor Classification in Switzerland

To benefit from Switzerland's zero capital gains tax on the Swiss side, the investor must qualify as a private investor under Swiss tax law. Professional securities traders are taxed on capital gains as ordinary income. The classification depends on holding periods, transaction frequency, reliance on investment income, and use of leverage.

Anti-Avoidance Compliance

Although both India and Switzerland have signed the MLI, Switzerland's definitive MLI position does not list the India treaty, so the DTAA is not a Covered Tax Agreement and the MLI's Principal Purpose Test does not apply to it. Anti-abuse scrutiny instead comes from the treaty's own anti-conduit provision (added by the 2010 protocol, covering Articles 10, 11, 12 and 22) and India's domestic GAAR (Sections 178 to 184 of the Income-tax Act, 2025; sections 95 to 102 of the Income-tax Act, 1961).

Capital Gains-Specific Treaty Provisions

Article 13(1): Immovable Property

Gains from the alienation of immovable property situated in India may be taxed in India. The definition includes agricultural land, buildings, livestock, and equipment used in agriculture and forestry. This is a standard situs-based provision that preserves India's full taxing right on Indian real estate disposals by Swiss residents.

Article 13(2): Movable Property of a Permanent Establishment

Gains from the alienation of movable property forming part of the business assets of a permanent establishment that a Swiss enterprise has in India may be taxed in India. This includes gains from the alienation of the PE itself. This provision ensures India can tax the disposal of business assets connected to an Indian PE, including goodwill and other intangible assets of the PE.

Article 13(3): Ships and Aircraft

Gains from the alienation of ships or aircraft operated in international traffic, or movable property pertaining to their operation, are taxable only in the contracting state of residence of the alienator. India cannot tax Swiss shipping or airline companies on gains from disposing of their international fleet.

Article 13(4): Property-Rich Companies

Gains from the alienation of shares of a company whose property consists principally of immovable property situated in India may be taxed in India. The word "principally" is generally interpreted as meaning more than 50% of the company's total asset value. This provision prevents indirect transfers of Indian real estate through share sales in property-rich holding companies.

Article 13(5): Share Gains — India's Taxing Right Preserved

This is the key provision. Article 13(5)(a) states that gains from the alienation of shares (other than property-rich company shares under Article 13(4)) of a company resident in a contracting state are taxable only in the alienator's residence state. But Article 13(5)(b) immediately carves this back: notwithstanding sub-paragraph (a), India may tax gains from the alienation of shares in a company which is a resident of India. In that case Article 23(1)(b) applies — India allows a deduction from its tax equal to the income tax paid in Switzerland on those gains, capped at the Indian tax on the gains. Because Switzerland levies no capital gains tax on private investors and grants participation relief to companies, the Swiss tax is usually nil and the Indian tax is effectively final.

A protocol provision completes the picture: if Switzerland later introduces a capital gains tax on share alienations, Article 13(5) is to be replaced with a rule allowing each state to tax gains on shares of its resident companies, and Article 23(1)(b) falls away. Switzerland has not introduced such a tax, so the current 13(5)(a)/(b) structure applies.

Interaction with India's Domestic Law

Because Article 13(5)(b) preserves India's taxing right over shares of Indian companies, the treaty and Section 9(2)(c) of the Income-tax Act, 2025 (section 9(1)(i) of the Income-tax Act, 1961) point the same way for direct transfers: India taxes at its domestic capital gains rates. Genuine interpretive questions arise mainly for indirect transfers — a Swiss resident selling shares of a third-country company that derives substantial value from Indian assets. Such shares are not shares of a company resident in India or Switzerland, so they fall into the Article 13(6) residual (residence-only taxation), while India's indirect-transfer deeming rule in Section 9(2)(c) asserts a domestic taxing right; under Section 159(4) of the Income-tax Act, 2025 (section 90(2) of the Income-tax Act, 1961) the more beneficial treaty rule can be invoked, and this interplay remains litigated.

Documentation Required

Swiss residents claiming treaty benefits on Indian capital gains must provide the following documentation:

Tax Residency Certificate (TRC)

A TRC issued by the relevant Swiss cantonal tax authority confirming tax residence in Switzerland for the relevant assessment year. This is mandatory under Section 159(8).

Form 41 (formerly Form 10F)

The Swiss resident must file Form 41 electronically on India's Income Tax e-filing portal, declaring status, nationality, Swiss tax identification number, period of residential status, and Swiss address.

Permanent Account Number (PAN)

A Swiss resident earning capital gains in India must obtain a PAN from the Indian tax authorities for tax return filing and treaty benefit claims.

Indian Tax Return

Capital gains earned in India must be reported in the Indian income tax return (ITR-2 or ITR-3). Where a treaty position is taken — for example the Article 13(6) residual rule for assets other than Indian-company shares, or the Article 23(1)(b) credit for Swiss tax — the income should still be disclosed in the return with the treaty claim.

Transfer Pricing Documentation

If the share transfer is between related parties (e.g., intra-group restructuring), transfer pricing documentation demonstrating arm's length valuation is essential to support the transaction value and avoid adjustments under Section 161 of the Income-tax Act, 2025 (section 92 of the Income-tax Act, 1961).

Withholding Procedure for Indian Payers

When an Indian resident purchases shares from a Swiss resident, or when sale proceeds are remitted to Switzerland, the following procedures apply under Section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961):

TDS Obligations

The Indian buyer must deduct TDS on capital gains at applicable domestic rates — for shares of Indian companies, Article 13(5)(b) preserves India's taxing right, so there is no treaty exemption to invoke. Where the actual tax liability is lower than the default withholding (for example, because of the computation of the gain or an Article 23(1)(b) credit), the Swiss seller (the payee) should apply 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); the buyer's own route for determining the taxable portion is an application under Section 395(2) of the Income-tax Act, 2025 (section 195(2) of the Income-tax Act, 1961).

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

For remittance of sale proceeds to Switzerland:

• Form 146: A Chartered Accountant certifies the nature of remittance, applicable treaty provisions, and TDS deducted or exempted via Form 146
• Form 145 Part C: The remitter files Form 145 online, referencing the Form 146 acknowledgement number
• If a nil/lower withholding certificate under Section 395(1) is obtained, Form 145 Part B may apply

Section 395(1) Certificate

Given the computational complexity of capital gains withholding, Swiss residents (as payees) often apply for a lower or nil withholding certificate under Section 395(1) from the Indian tax officer. This certificate authorises the buyer to remit sale proceeds with reduced or no TDS, based on the actual tax computation.

Common Disputes and Judicial Precedents

Article 13(5)(b) and the Scope of India's Taxing Right

For direct sales of Indian-company shares there is little to dispute: Article 13(5)(b) expressly lets India tax the gains, and the taxpayer's remedies are the Article 23(1)(b) credit for any Swiss tax and the ordinary computation rules. Disputes instead centre on classification questions — whether a company's property consists "principally" of immovable property (pulling the gain into Article 13(4)), whether an asset falls within the Article 13(6) residual (taxable only in Switzerland), and how Switzerland's requirement that actual Indian taxation be "demonstrated" (Article 23(2)(a)) is satisfied for Swiss-side relief.

MFN Clause and Capital Gains

The India-Switzerland DTAA protocol contained a Most Favoured Nation (MFN) clause that Switzerland applied unilaterally to reduce rates to match lower rates India offered to other OECD countries. Following the Indian Supreme Court's ruling in the Nestle SA case (October 2023), which held that MFN benefits require explicit notification under Indian law, Switzerland suspended its unilateral MFN application effective January 1, 2025. The change affects only Swiss dividends paid to Indian residents, which went back from 5% to 10%. India never applied the 5% rate, so dividends from India to Swiss residents have been taxed at 10% throughout. The episode signals a broader shift in the treaty relationship that may influence how capital gains disputes are resolved.

Indirect Transfer Cases

Following the Vodafone case and the introduction of the indirect-transfer deeming rule (Explanation 5 to section 9(1)(i) of the Income-tax Act, 1961; from 1 April 2026, Section 9(2)(c) of the Income-tax Act, 2025), India has asserted the right to tax indirect transfers — gains from transferring shares in a foreign entity that derives substantial value from Indian assets. When the seller is Swiss and the entity whose shares are sold is resident in a third country, the shares fall outside Article 13(5) (which covers shares of companies resident in India or Switzerland) and into the Article 13(6) residual — residence-only taxation — creating a potential conflict with India's domestic indirect transfer provisions. The resolution depends on whether the treaty or domestic law prevails, and this remains an evolving area of jurisprudence.

Protocol Provision on Future Swiss CGT

The treaty protocol provides that if Switzerland introduces a capital gains tax on share alienations in the future, Article 13(5) will be replaced with a provision allowing each state to tax gains on shares of its resident companies (and the Article 23(1)(b) India-side credit will be deleted). Since Switzerland has not introduced such a tax (and its longstanding policy of exempting private investors from CGT makes this unlikely in the near term), the current Article 13(5)(a)/(b) structure continues to apply.

Practical Examples and Calculations

Example 1: Swiss Private Investor Selling Listed Indian Shares

A Swiss private investor (not a professional trader) holds shares in an Indian listed company for 18 months and sells them for a gain of INR 50,00,000.

• Treaty position (Article 13(5)(b)): India may tax the gains — no treaty exemption applies to shares of an Indian company
• Indian tax: 12.5% under Section 198 on gains exceeding INR 1.25 lakh = INR 6,09,375 (plus surcharge/cess)
• Swiss domestic tax: NIL (private investor exempt from capital gains tax) — so the Article 23(1)(b) credit India allows for Swiss tax is nil
• Swiss-side treatment: Switzerland exempts the gain with progression, provided actual Indian taxation is demonstrated (Article 23(2)(a))
• Total tax: INR 6,09,375 plus surcharge/cess — payable in India
• Practical approach: The seller (payee) may apply for a Section 395(1) certificate where the correct withholding is lower than the default

Example 2: Swiss Company Selling Unlisted Indian Subsidiary

A Swiss multinational sells its 100% stake in an unlisted Indian subsidiary for a gain of INR 100,00,00,000 (INR 100 crore). Shares held for 5 years.

• Treaty position (Article 13(5)(b)): India may tax the gains on the Indian subsidiary's shares
• Indian tax: 12.5% without indexation = INR 12,50,00,000 (plus surcharge/cess)
• Swiss corporate tax: Participation relief — gains from qualifying participations (10%+ stake or CHF 1M+ value) are substantially tax-exempt in Switzerland, so the Article 23(1)(b) credit is minimal or nil
• Net effect: The Indian tax of INR 12.5 crore is effectively the final tax on the exit
• High likelihood of Indian scrutiny: Large-value transactions are routinely examined by Indian tax authorities, including valuation under transfer pricing rules

Example 3: Property-Rich Company Transfer

A Swiss entity holds shares in an Indian company whose assets are 65% immovable property in India. It sells these shares for a gain of INR 20,00,00,000.

• Article 13(4) applies: Property consists principally of Indian immovable property
• India's taxing right: Fully preserved — the share-gains rules of Article 13(5) do not apply
• Tax rate: India's domestic capital gains rates apply (12.5% long-term without indexation; slab/35% rates if short-term)
• Swiss-side relief: Switzerland exempts the gain with progression where actual Indian taxation is demonstrated (Article 23(2)(a))

Example 4: Indirect Transfer Dispute

A Swiss company transfers shares in a Singapore entity that holds 100% of an Indian subsidiary. The Indian subsidiary constitutes 80% of the Singapore entity's value.

• India's position: Indirect transfer taxable under Section 9(2)(c)
• Taxpayer's argument: The shares are of a Singapore company — resident in neither contracting state — so the gain falls into the Article 13(6) residual, taxable only in Switzerland
• Key issue: Whether the treaty's residual rule prevails over the domestic indirect-transfer provision under Section 159(4), and whether Article 13(4) can reach through to underlying Indian immovable property
• Practical risk: Significant litigation risk — both positions have support in judicial precedents

For dividend rate provisions and the MFN clause, see dividend tax rate between India and Switzerland. For interest provisions, see interest tax rate India-Switzerland. For a comprehensive rate summary, visit India to Switzerland withholding tax rates. The complete treaty analysis is available at India-Switzerland DTAA complete guide. For DTAA benefits for Swiss companies investing in India, see our DTAA benefits guide. Businesses structuring India operations from Switzerland should explore our tax advisory services, transfer pricing advisory, and FEMA compliance support. See also how to register a company in India from Switzerland.

Frequently Asked Questions

Does the India-Switzerland DTAA exempt capital gains on shares?

No — not for shares of Indian companies. Article 13(5)(b) expressly preserves India's right to tax gains from the alienation of shares in a company resident in India, so a Swiss seller pays Indian capital gains tax at domestic rates. India then allows a credit for any Swiss tax on those gains under Article 23(1)(b) — usually nil, since Swiss private investors pay no capital gains tax. Only the Article 13(6) residual (for example shares of third-country companies) is taxable exclusively in Switzerland.

Does Switzerland tax capital gains on Indian shares?

For private investors, Switzerland does not levy capital gains tax on the sale of listed securities. Corporate investors may qualify for participation relief on qualifying holdings (10%+ stake or CHF 1M+ value), substantially reducing or eliminating Swiss tax on gains from Indian subsidiary disposals.

How did the MFN clause suspension affect capital gains?

Switzerland's MFN change effective January 1, 2025, affected only Swiss dividends paid to Indian residents (back from 5% to 10%); dividends from India to Swiss residents were taxed at 10% throughout. The capital gains provisions in Article 13 were not directly affected by the MFN clause. However, the suspension signals a broader deterioration in the bilateral tax relationship that may influence how Indian authorities approach Article 13(5) claims.

What is the protocol provision about future Swiss capital gains tax?

The treaty protocol states that if Switzerland introduces a capital gains tax on share alienations, Article 13(5) will be replaced with a provision allowing each state to tax gains on shares of its resident companies, and the Article 23(1)(b) India-side credit will be deleted. Since Switzerland has not introduced such a tax, the current Article 13(5)(a)/(b) structure continues to apply.

What documentation is needed for treaty claims on capital gains?

A Tax Residency Certificate from the Swiss cantonal tax authority, Form 41 filed electronically, a PAN, and an Indian tax return disclosing the gain with any treaty claim (such as the Article 13(6) residual rule or the Article 23(1)(b) credit). For large transactions, a Section 395(1) lower/nil withholding certificate — applied for by the seller — is strongly recommended.

Can India invoke GAAR on a capital gains transaction?

Yes. India's GAAR under Sections 178 to 184 of the Income-tax Act, 2025 (sections 95 to 102 of the Income-tax Act, 1961) can override treaty benefits for impermissible avoidance arrangements. If the arrangement lacks commercial substance or its main purpose is obtaining a tax benefit, GAAR can deny the residence-only treatment of Article 13(6) residual gains and apply domestic capital gains tax rates.

How are indirect transfers treated under the treaty?

India's domestic indirect transfer provisions under Section 9(2)(c) can potentially conflict with the Article 13(6) residual rule for transactions involving shares of third-country entities that derive value from Indian assets. The resolution depends on whether treaty or domestic law prevails — an evolving area with ongoing litigation.