Capital Gains Tax Between India and Turkey Under DTAA

Quick answer: Article 13 of the India-Turkey DTAA does not set a single capital gains rate -- it allocates taxing rights by asset type. India can tax a Turkish resident's gains on Indian immovable property (Article 13(1)), land-rich shares (Article 13(4)), and, critically, gains from shares of any Indian company regardless of holding period (Article 13(5)). Ships and aircraft gains go only to the state of the enterprise's registered office (Article 13(3)). Gains on other property go to the seller's residence state unless held one year or less (Article 13(6)). India's domestic rates apply once its taxing right is established: 12.5% LTCG on listed shares above INR 1.25 lakh, 20% STCG on listed shares, and 12.5% LTCG on unlisted shares. The treaty was signed 31 January 1995 and took effect from 1 February 1997; Turkey has signed but not ratified the MLI.

Key takeaways:

• Article 13 allocates taxing rights by asset type across six paragraphs -- it does not prescribe one capital gains rate
• Article 13(5) lets India tax gains on shares of an Indian company with no participation threshold and no holding-period condition
• The treaty's one-year holding rule (Article 13(6)) applies only to residual, non-share property -- never to shares
• Ships/aircraft gains are taxed only where the enterprise's registered office is situated (Article 13(3)), not by place of effective management
• India's domestic LTCG/STCG rates (12.5%/20%) apply once India's taxing right is established under the relevant paragraph

Capital Gains Tax Rate Between India and Turkey

The India-Turkey DTAA, signed on 31 January 1995 and in force from 1 February 1997, addresses capital gains in Article 13 through six separate paragraphs, each allocating the taxing right for a different category of asset rather than fixing a single withholding percentage. This structure -- and in particular its treatment of share gains -- differs materially from several other Indian treaties, so Turkish investors and their advisers need the paragraph-by-paragraph map rather than a single headline number. For the treaty's full framework, see our India-Turkey DTAA complete guide.

Article 13's Six-Paragraph Structure: Taxing Rights by Asset Type

Article 13(1): Immovable Property

Gains from the alienation of immovable property are taxable in the Contracting State where the property is situated, under Article 13 of the India-Turkey DTAA. A Turkish resident selling Indian real estate is taxed in India at India's domestic rates.

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

Gains from movable property forming part of the business property of a permanent establishment that a Turkish enterprise has in India -- including gains from the alienation of the PE itself -- may be taxed in India.

Article 13(3): Ships and Aircraft -- the Registered-Office Test

Gains from the alienation of ships or aircraft operated in international traffic are taxable only in the Contracting State in which the registered office of the enterprise is situated. This is a distinctive feature of the India-Turkey treaty: many other Indian treaties key this rule to the enterprise's place of effective management or the alienator's residence, but Article 13(3) turns specifically on where the enterprise is registered, which can produce a different result if the registered office and the place of effective management sit in different countries.

Article 13(4): Land-Rich Shares

Gains from the alienation of shares of a company whose property consists, directly or indirectly, principally of immovable property situated in a Contracting State may be taxed in that State. A Turkish resident selling shares of a land-rich Indian company is taxable in India under this paragraph.

Article 13(5): All Other Shares of a Resident Company -- No Holding-Period Condition

This is the paragraph most likely to surprise Turkish sellers of Indian shares. Article 13(5) provides that gains from the alienation of shares of a company which is a resident of a Contracting State may be taxed in that State -- full stop. There is no participation threshold (it applies to a 1% stake and a 100% stake alike) and, critically, no holding-period condition. A Turkish resident selling shares of any Indian company, however long they were held, remains taxable in India under Article 13(5).

Article 13(6): Residual Property -- the One-Year Rule

Gains from property not covered by paragraphs 1 to 5 are taxable only in the alienator's State of residence, unless the period between acquisition and alienation of that property does not exceed one year, in which case the State from which the gains are derived may also tax them. This one-year rule is the treaty's only holding-period test, and it applies exclusively to this residual category of non-share property -- not to shares, which are already and separately addressed in paragraphs 4 and 5.

The Trap: Shares Are Never Protected by the One-Year Rule

A common and costly misreading of this treaty is to assume that holding Indian shares for more than a year shifts the taxing right exclusively to Turkey, by analogy with the one-year rule in Article 13(6). That reading is wrong for this treaty: the one-year rule is confined to Article 13(6)'s residual, non-share property. Shares of an Indian company -- whether land-rich under Article 13(4) or any other resident company under Article 13(5) -- are taxable in India regardless of the holding period. Turkish investors selling Indian shares after five, ten, or twenty years remain within India's taxing right under Article 13(5) just as they would after five months.

India's Domestic Capital Gains Rates

Once India's taxing right is established under Article 13, India's domestic rates apply to the gain. Following the Finance Act 2024 (effective 23 July 2024), the current rates for a non-resident seller are: 12.5% long-term capital gains (LTCG) on listed shares held over 12 months, on gains exceeding INR 1.25 lakh in the financial year, under section 198 of the Income-tax Act, 2025 (section 112A of the Income-tax Act, 1961); 20% short-term capital gains (STCG) on listed shares held 12 months or less, under section 196 of the Income-tax Act, 2025 (section 111A of the Income-tax Act, 1961); and 12.5% LTCG without indexation on unlisted shares held over 24 months, under the general long-term capital gains provision in section 197 of the Income-tax Act, 2025 -- the successor to section 112 of the Income-tax Act, 1961, and distinct from the lower-deduction-certificate provision that carries the same "section 197" number under the 1961 Act (now renumbered to section 395(1) of the 2025 Act).

Who Qualifies for Treaty Protection on Capital Gains

Tax Residency Requirement

The person claiming treaty benefits must be a tax resident of Turkey under Article 4 of the DTAA, evidenced by a Tax Residency Certificate from the Gelir Idaresi Baskanligi (Turkish Revenue Administration).

Beneficial Ownership and GAAR

Article 13 does not itself reference beneficial ownership as Articles 10 to 12 do, but substance still matters. Both India and Turkey signed the MLI on 7 June 2017; India ratified it and listed this treaty as a Covered Tax Agreement, but Turkey has not deposited its instrument of ratification, so the Principal Purpose Test does not yet apply. India's domestic GAAR, under section 159(6) of the Income-tax Act, 2025 (section 90(2A) of the Income-tax Act, 1961), can still deny treaty protection where a share sale is routed through a Turkish entity primarily to access a perceived treaty benefit -- though on this treaty's own terms, Article 13(5) already gives India the taxing right over Indian share gains regardless of holding period, so there is little scope to "shop" for a better outcome on plain share sales.

India's Indirect Transfer Provisions

Section 9 of the Income-tax Act, 2025 (section 9(1)(i) of the Income-tax Act, 1961), whose business-connection limb is now section 9(2)(c) with the definition in section 9(9), deems gains from Indian company shares as India-source income. The indirect transfer rules carried forward from Explanation 5 to section 9(1)(i) of the 1961 Act can also reach gains from selling shares of a foreign (including Turkish) company that derives substantial value from Indian assets, independent of Article 13.

Documentation Required for Capital Gains Treaty Claims

Tax Residency Certificate and Form 41

A TRC from the Gelir Idaresi Baskanligi, required under section 159(8) of the Income-tax Act, 2025 (section 90(4) of the Income-tax Act, 1961), is the foundational document. If it lacks the prescribed particulars, Form 41 (formerly Form 10F) must be filed electronically.

Self-Declaration and Forms 145/146

A self-declaration of beneficial ownership should accompany the sale documentation. When the Indian buyer remits sale proceeds to Turkey, Form 145 must be filed electronically, and a Chartered Accountant's Form 146 is required for remittances exceeding INR 5 lakh.

Withholding Procedure for Indian Payers

TDS on Share Transfers

Under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961), the buyer of shares from a Turkish resident must deduct tax at source on the capital gains component at the applicable domestic rate, since Article 13 allocates the taxing right rather than prescribing its own rate.

Lower Withholding Certificate

The Turkish seller can apply to the Assessing Officer for a certificate specifying a lower withholding rate under section 395(1) of the Income-tax Act, 2025 (the lower-deduction-certificate provision carried forward from section 197 of the Income-tax Act, 1961) -- or, for the buyer's own remittance obligation, under section 395(2) of the Income-tax Act, 2025 (section 195(2) and (3) of the Income-tax Act, 1961). This is useful where the actual gain is small relative to the sale consideration.

Advance Ruling

For complex transactions, a Turkish seller can seek certainty from the Board for Advance Rulings under section 383 of the Income-tax Act, 2025 (section 245Q of the Income-tax Act, 1961) before completing the sale.

Practical Examples and Calculations

Example 1: Turkish Company Selling Shares of an Indian Subsidiary Held for Eight Years

Marmara Sanayi A.S., a Turkish company, sells its 100% shareholding in an unlisted Indian company for INR 12 crore, with an original cost of INR 5 crore, after holding the shares for eight years.

• Capital gain: INR 7 crore (long-term, unlisted shares held over 24 months).
• India's right to tax: Yes -- Article 13(5) allows India to tax gains on shares of an Indian resident company regardless of the eight-year holding period.
• Indian tax: 12.5% LTCG = INR 87.5 lakh (plus applicable surcharge and cess).
• Turkey's relief: Under Article 22(3)(a), Turkey generally exempts this Article 13(5) gain with progression, since the ordinary-credit carve-out in Article 22(3)(b) is limited to gains falling under Article 13(6).

Example 2: Turkish Investor Selling Listed Indian Shares Held for Six Months

Mr. Yilmaz, a Turkish individual, sells listed shares of an Indian company on the NSE for INR 30 lakh, with an original cost of INR 22 lakh, after a six-month holding period.

• Capital gain: INR 8 lakh (short-term, held 12 months or less).
• India's right to tax: Yes -- Article 13(5); the short holding period is irrelevant to the taxing right, which exists regardless of duration.
• Indian tax: 20% STCG = INR 1.6 lakh, under section 196 of the Income-tax Act, 2025.

Example 3: Residual Property Held for Eight Months

A Turkish company sells a non-share business asset (not immovable property, not PE-connected, not a ship or aircraft) that it has held for eight months, realising a gain of INR 40 lakh. Because this falls under the Article 13(6) residual clause and the holding period is one year or less, India may also tax the gain alongside Turkey, unlike a sale of the same asset held for over a year, which Article 13(6) would reserve exclusively to Turkey as the residence State.

For structuring cross-border share transfers and exits, see our tax advisory and transfer pricing services, and our guide to registering a company in India from Turkey.

Frequently Asked Questions

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

Article 13 allocates taxing rights by asset type rather than setting one rate. Immovable property and land-rich shares are taxable in the country where the property sits; shares of a company resident in a state may be taxed by that state under Article 13(5) regardless of holding period; ships and aircraft gains go only to the state of the enterprise's registered office; and residual property gains go to the seller's residence state, unless held one year or less.

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

Yes. Under Article 13(5), gains from shares of a company resident in India may be taxed in India regardless of how long the shares were held -- there is no participation threshold and no holding-period exemption. India applies its domestic capital gains rates, and Turkey provides relief for the Indian tax paid.

Does holding Indian shares for more than a year shelter the gain from Indian tax?

No. The treaty's one-year holding rule appears only in Article 13(6), the residual clause for property other than shares. It does not apply to shares of a resident company under Article 13(4) or 13(5) -- a Turkish resident selling Indian shares remains taxable in India regardless of the holding period.

How are gains on ships and aircraft taxed under this treaty?

Under Article 13(3), gains from the alienation of ships or aircraft operated in international traffic are taxable only in the Contracting State where the enterprise's registered office is situated -- a registered-office test, not the place-of-effective-management test used in some other Indian treaties.

What are India's domestic capital gains rates for a non-resident seller?

Following the Finance Act 2024, long-term capital gains on listed shares held over 12 months are taxed at 12.5% on gains above INR 1.25 lakh, short-term gains on listed shares at 20%, and long-term gains on unlisted shares (held over 24 months) at 12.5% without indexation.

How does Turkey relieve double taxation on capital gains taxed in India?

Under Article 22(3), Turkey generally exempts income taxable in India (with progression), but for gains falling under the residual Article 13(6) clause specifically, Turkey instead grants an ordinary tax credit for the Indian tax paid. The method therefore depends on which paragraph of Article 13 the gain falls under.