India Capital Gains Tax Treaty Exemption: Exits and MFN

Since 1 April 2017 India may tax most direct sales of Indian shares, but an India capital gains tax treaty exemption survives, subject to conditions, in a narrow set of treaties: the Netherlands (except a 10%+ stake sold to an Indian resident), Sweden (where the seller is taxed), France, Spain and Belgium below 10%, Korea below 5% (for a seller not controlled from outside Korea), and pre-April 2017 shares under the Mauritius, Singapore and Cyprus treaties. No most-favoured-nation (MFN) clause lowers Indian withholding unless India has notified the lower rate. A seller should test its treaty, stake and buyer before signing: the France Protocol, once in force, would close the French route, and an Austrian investor’s last date to request settlement under its investment treaty is about 23 December 2026.

Treaties that may restrict India’s right to tax share gains

The comparison covers only the 22 treaties we checked. Of those, only these restrict India’s right to tax a direct sale of Indian shares, and each does so subject to conditions: land-rich rules, residence, holding thresholds and anti-abuse rules. A treaty only caps Indian tax; a more beneficial domestic rule still applies (s.159(4), Income-tax Act 2025).

Exit scorecard (direct sale of Indian shares)

The other 13 do not. Austria, Luxembourg, Ireland, Australia and Saudi Arabia (Art 13(5)), Germany and the UAE (Art 13(4)), Italy (Art 14(5)) and Japan (Art 13(3)) let India tax gains on shares of Indian companies. So does Switzerland: “India may tax gains from the alienation of shares in a company which is a resident of India” (Art 13(5)(b)). The UK (Art 14(1)) and US (Art 13) treaties defer to domestic law; Canada’s lets both States tax (Art 13(2)).

The conditions that decide whether the exemption holds

Thresholds. The Dutch test asks whether the shares “form part of at least a 10 per cent interest”, not how large the block sold is, so on the wording a 3% slice of a 12% holding is caught. Korea looks back 12 months; the French, Spanish and Belgian clauses do not. A Dutch 10%+ sale to an Indian resident stays residence-only if “realised in the course of a corporate organisation, reorganization, amalgamation, division or similar transaction”, where the buyer or seller owns at least 10% of the other (Art 13(5)). For Dutch land-rich shares, the Income Tax Department’s synthesised text applies MLI Article 9(1) to Article 13(4), so the value threshold is met if it was met “at any time during the 365 days preceding the alienation”. That is subject to the same enforceability question as the MLI PPT below (Sky High, Kosi Aviation).

Sweden’s condition. Whether a Swedish seller whose gain is exempt at home is “subject to tax thereon” is a question of interpretation; Swedish law is outside this note.

Residence and paperwork. Relief needs a tax residency certificate and the prescribed information, now Form 41 (s.159(8)). The Supreme Court called the certificate an “eligibility condition”, not “sufficient” evidence (para 37, AAR v Tiger Global International II Holdings, 2026 INSC 60, 15 January 2026).

Anti-abuse. Three layers apply:

1. PPT. The principal purpose test may reach these treaties through the MLI; the Income Tax Department’s synthesised text shows MLI Article 7 applying to the Netherlands treaty. Tribunals have held that a treaty-specific notification is needed first (see Sky High and Kosi Aviation in our India–UAE treaty guide). The Mauritius, Singapore and Cyprus grandfathering “shall remain outside the purview of the PPT provision” (para 4.B, CBDT Circular 01/2025).
2. GAAR. Chapter XI applies even where the treaty is more beneficial (s.159(6)), unless the year’s aggregate tax benefit is INR 3 crore or less (r.128(1)(a), Income-tax Rules 2026). It does not apply to income from transferring investments “made before the 1st April, 2017” (r.128(1)(d), (2), as substituted by Notification 55/2026).
3. Treaty-specific rules. Singapore’s Article 24A denies the pre-2017 exemption to a company whose affairs were arranged with that “primary purpose”, and deems a shell any company spending less than S$200,000 a year on operations in Singapore in each 12-month period of the prior 24 months, unless listed. For Mauritius, the limitation of benefits clause applies only to Article 13(3B) (para 45, Tiger Global), but the Court accepted that judicial anti-avoidance runs alongside GAAR (para 48). Spain’s treaty has its own main-purpose test (Art 28B(4)). Korea’s Article 28 denies Article 13 benefits to a Korean resident “controlled directly or indirectly” by non-residents of Korea, and to arrangements with a main purpose of avoiding tax (Art 28(2)–(3)).

Selling the holding company instead

India’s indirect-transfer rules are the starting point. India taxes a sale of a foreign company’s shares that derive their value substantially from Indian assets: Indian assets worth more than INR 10 crore and at least 50% of all its assets (s.9(10)(a)–(b)). A seller is outside this if, in the prior 12 months, it held no right of management or control and no more than 5% (s.9(10)(g)(ii)–(iii)).

The treaty point is at best arguable, and selling the holdco is not a reliable route. Most share clauses cover shares of “a company which is a resident” of India. Shares of a Dutch or Singapore holding company are not that, so on our reading of the text they may fall under the residuary clause, taxable only where the seller is resident. That is our reading, not a holding. In 2013 the Andhra Pradesh High Court held a French seller’s gain on the shares of a French holding company taxable only in France under the French treaty (see our Sanofi case study). In Tiger Global, a sale of a Singapore company’s shares by Mauritius companies, the Court said that “an indirect sale of shares would not, at the threshold, fall within the treaty protection contemplated under Article 13” (para 18). But it decided the case on avoidance: the transactions were prima facie impermissible avoidance arrangements, so the assessees could not “claim exemption under Article 13(4)”, and their advance ruling applications were barred under proviso (iii) to s.245R(2) of the 1961 Act (paras 50–51). It ruled at the admission stage, on a prima facie view, not on full facts. Plan on the point being contested.

The treaty that matters is the seller’s, not the holdco’s, and a UK or US seller, whose treaty defers to domestic law, has no residuary-clause argument. GAAR applies unless the investment was made before 1 April 2017. The background is in our Vodafone and Cairn insight.

Worked example: a Dutch holdco sells 12%

A Dutch BV, resident in the Netherlands with real substance, bought 12% of an unlisted Indian company in 2019 for INR 50 crore. It sells the whole stake for INR 150 crore, a gain of INR 100 crore. The Indian company is not land-rich. Figures are illustrative.

For the foreign-buyer sale, the BV needs its certificate, Form 41 and a substance file. The Indian-buyer sale escapes only through the reorganisation carve-out. Selling 3% abroad first and then 9% to the Indian buyer would, on the wording, take the second sale below 10%, but that sequencing is what a PPT or GAAR review examines. A buyback is also, on the treaty’s words, a sale to an Indian resident, and whether it can fall within the reorganisation carve-out is a question of interpretation; our withholding and repatriation insight covers the buyback rules and the domestic rates.

The MFN scorecard after Nestle (MFN clause in India’s DTAAs)

In AO v Nestle SA (Civil Appeal 1420 of 2023, 19 October 2023), the Supreme Court held at para 99 that:

• 1. a s.90(1) notification is “necessary and a mandatory condition” for a treaty or protocol that alters the law;
• 2. an MFN clause “does not automatically lead to integration” of a better term given to another country, and the earlier treaty must be amended “through a separate notification”;
• 3. “is” in “is a member of the OECD” has “present signification”, so the third country must be a member when it signs with India.

The third countries relied on, Lithuania, Colombia and Slovenia, joined the OECD later (para 52). Review petitions were dismissed on 6 August 2024.

MFN scorecard

Switzerland. Its official notice of 11 December 2024 says “India interprets the MFN provision differently and does not apply it”, so Switzerland “will revert to the previous rate of 10% from 1 January 2025”.

France. The French Senate’s report (No. 81, 21 October 2026) on the Protocol signed at New Delhi on 18 February 2026 says it “suppriment les quatre clauses de la nation la plus favorisée” (deletes the four MFN clauses). India will be able to tax gains on shares of Indian companies “quel que soit le niveau de participation” (whatever the holding), after a two-year delay. India completed its procedures on 13 July 2026; the Protocol enters into force the day after France notifies completion of its own. The Senate is reported to have adopted the bill on 27 October 2026. We found no French notification, and the Protocol was not in force on 29 October 2026. Senate approval is not entry into force: the Protocol applies only after both notifications, and then from the dates set in its own entry-into-force article. Until then the current treaty governs. On the Senate report’s description, a French seller below 10% keeps the exemption until the Protocol is in force and the two-year delay has run.

Netherlands and Austria

The Netherlands is still an exit treaty, on the conditions above. Its investment treaty ended on 1 December 2016, but earlier investments stay protected until 1 December 2031. For the holdco comparison, see our Netherlands or Luxembourg insight.

Dutch conditional withholding. The tax applies to interest, royalties and dividends paid by a Dutch company to an affiliated entity in a designated low-tax jurisdiction (arts 2.1, 3.1, Wet bronbelasting 2021). The rate is the highest Dutch corporate income tax rate (art 4.1).

• Bahrain is designated in the 2026 list (art 2a(a), Regeling laagbelastende staten).
• The UAE was removed by the Eindejaarsregeling 2023, and Qatar, Kuwait and Saudi Arabia are not listed.

So dividends from a Dutch holdco to an affiliated Bahrain parent fall within the tax, where the other conditions of the law are met. A UAE parent is outside the low-tax list, although the law’s separate anti-abuse limb can still apply to artificial structures (art 2.1(1)(c)). The UAE treaty itself gives no exit relief (Art 13(4)), and India has no double taxation agreement with Bahrain (the Income Tax Department lists only a tax information exchange agreement). Our Gulf treaties insight covers the other Gulf treaties.

Austria is not an exit treaty. India may tax gains on shares of Indian companies (Art 13(5)), and Austria credits that tax (Art 23). Dividends, interest, and royalties and technical fees are each capped at 10% (Arts 10(2), 11(2), 12(2)). The amending Protocol in force from 1 May 2020 dealt only with exchange of information and collection assistance (Arts 26, 26A). Its investment treaty, terminated on 23 March 2017, protects earlier investments (Arts 1–12) until 23 March 2027. It needs only three months of negotiation from a request for amicable settlement (Art 9(2)), so the last date to request settlement is about 23 December 2026; this is an investment-treaty step, not a condition of capital-gains relief. Of the investment treaties whose protection ends in March–April 2027, it is the only one whose last request date has not passed.

Common questions

Can India tax a Dutch company selling Indian shares?

On the treaty text, only if the shares form part of a 10%+ interest sold to an Indian resident outside a qualifying reorganisation, or are unlisted land-rich shares in a 25%+ holding (Arts 13(4)–(5)). The PPT and GAAR can still deny the treaty.

Which countries’ treaties exempt capital gains on Indian shares?

Of the 22 treaties we checked, and subject to their conditions, on a direct sale: the Netherlands (except 10%+ sold to an Indian resident), Sweden (if taxed there), France, Spain and Belgium below 10%, Korea below 5% (for a seller not controlled from outside Korea), and Mauritius, Singapore and Cyprus for shares acquired before 1 April 2017.

Does the MFN clause give a 5% dividend rate under the Netherlands, France or Switzerland treaty?

No. Nestle requires a separate notification and tests OECD membership when the third country signs (para 99).

Is selling the foreign holding company exempt from Indian tax?

India taxes it if s.9(10) is met. On our reading of the treaty text, the residuary clause may arguably protect the seller, but this is not a reliable route: Tiger Global (para 18) points the other way, and GAAR applies to post-2017 investments.

Points to review

• Seller and stake. The seller’s treaty, its whole interest (not just the block sold) and any Korean look-back are confirmed.
• Buyer. Whether the buyer, or a buyback, is an Indian resident is tested against Netherlands Art 13(5).
• Acquisition date. Shares and investments made before 1 April 2017 are evidenced for grandfathering and the GAAR carve-out.
• Anti-abuse file. Residence, certificate, Form 41 and commercial reasons are documented for the PPT, GAAR and Art 24A.
• Holdco route. The s.9(10) thresholds are measured and the residuary-clause argument is treated as contestable.
• Dates. The France Protocol’s notification and the Austria BIT request date of about 23 December 2026 are tracked.

Sources

1. India–Netherlands DTAA, Arts 10–13, Protocol IV(2), as amended by S.O. 693(E), 30 August 1999. Income Tax Department. https://www.incometaxindia.gov.in/w/netherlands-comprehensive-agreements-1 [TAX-DTAA_Netherlands.txt]
2. India–Sweden DTAA, Art 13, Protocol. Income Tax Department. https://www.incometaxindia.gov.in/w/sweden-comprehensive-agreements-1 [TAX-DTAA_Sweden.txt]
3. India–France DTAA, Art 14, Protocol para 7; S.O. 650(E), 10 July 2000. Income Tax Department. https://www.incometaxindia.gov.in/w/france-comprehensive-agreements-1 [TAX-DTAA_France.txt]
4. India–Spain DTAA, Art 14, Protocol para 7. Income Tax Department. https://www.incometaxindia.gov.in/w/spain-comprehensive-agreements-1 [TAX-DTAA_Spain.txt]; Notification No. 33/2024, S.O. 1484(E), 19 March 2024. CBDT. [TAX-DTAA_Spain_notification-33-2024.txt]
5. India–Belgium DTAA, Art 13, Protocol. Income Tax Department. https://www.incometaxindia.gov.in/w/belgium-comprehensive-agreements-1 [TAX-DTAA_Belgium.txt]
6. India–Korea DTAA, Arts 13, 28. Income Tax Department. https://www.incometaxindia.gov.in/w/korea-comprehensive-agreements-1 [TAX-DTAA_Korea.txt]
7. India–Mauritius DTAA, Arts 13, 27A, as amended by the Protocol notified by S.O. 2680(E), 10 August 2016. Income Tax Department. https://www.incometaxindia.gov.in/w/mauritius-comprehensive-agreements-1 [TAX-DTAA_Mauritius.txt; TAX-DTAA_Mauritius_notification682016.txt]
8. India–Singapore DTAA, Third Protocol, Arts 13(4A)–(4C), 24A, S.O. 935(E), 23 March 2017. Income Tax Department. https://www.incometaxindia.gov.in/w/singapore-comprehensive-agreements-1 [TAX-DTAA_Singapore_notification18-2017.txt]
9. India–Cyprus DTAA, Art 13 and Protocol para 2. Income Tax Department. https://www.incometaxindia.gov.in/w/cyprus-comprehensive-agreements-1 [TAX-DTAA_Cyprus.txt]
10. India–Switzerland DTAA, Art 13(5), Protocol. Income Tax Department. https://www.incometaxindia.gov.in/w/switzerland-comprehensive-agreements-1 [TAX-DTAA_Switzerland.txt]
11. India–Austria DTAA, Arts 10–13, 23. Income Tax Department. https://www.incometaxindia.gov.in/w/austria-comprehensive-agreements-1 [TAX-DTAA_Austria.txt]; Notification No. 22/2020, S.O. 1370(E), 24 April 2020. CBDT. [TAX-DTAA_Austria_notification22-2020.txt]
12. India treaties with Germany, Luxembourg, Ireland, Italy, Japan, Australia, the UAE, Saudi Arabia, the UK, the US and Canada, capital gains articles. Income Tax Department. Germany, Luxembourg, Ireland, Italy, Japan, Australia, UAE, Saudi Arabia, UK, US, Canada [TAX-DTAA_.txt]
13. MLI synthesised text, India–Netherlands, including the box applying MLI Article 9(1) to Article 13(4). Income Tax Department, viewed 30 October 2026 (quoted through a fetch tool; to be confirmed in a browser). https://www.incometaxindia.gov.in/w/netherlands-synthesised-text-1 [TAX-DTAA_Netherlands_MLI-synthesised-text_Art13-4_box_QUOTE-VIA-WEBFETCH_30-Oct-2026.txt]
14. Income-tax Act 2025, ss.9(10), 159. Income Tax Department. https://www.incometaxindia.gov.in/w/section-9-1 ; https://www.incometaxindia.gov.in/w/section-159-85 [ITA2025_s9.txt; ITA2025_s159.txt]
15. Income-tax Rules 2026, r.128 (G.S.R. 198(E), 20 March 2026), and Notification No. 55/2026, G.S.R. 241(E), 31 March 2026. CBDT. https://www.incometaxindia.gov.in/documents/d/guest/notification-no-55-2026-1-pdf [LAW-Tax_CBDT-Notification-55-2026_Rule-128-2026-Rules_31-Mar-2026.pdf]
16. CBDT Circular No. 01/2025, 21 January 2025, para 4.B. CBDT. https://www.incometaxindia.gov.in [LAW-Tax_CBDT-Circular-01-2025_PPT-Guidance_21-Jan-2025.pdf]
17. AAR v Tiger Global International II Holdings, 2026 INSC 60, 15 January 2026. Supreme Court of India. https://www.sci.gov.in [CASE-Tax_Tiger-Global_SC_2026-INSC-60_15-Jan-2026.pdf]
18. Assessing Officer v Nestle SA, Civil Appeal 1420 of 2023, 19 October 2023, and order in Review Petition (C) 77 of 2024, 6 August 2024. Supreme Court of India. https://api.sci.gov.in/supremecourt/2023/48138/48138_2023_2_1006_54483_Order_06-Aug-2024.pdf [CASE-Tax_Nestle-SA_SC_CA-1420-2023_19-Oct-2023; CASE-Tax_Nestle-SA_SC_Review-Petition-77-2024_06-Aug-2024]
19. “Switzerland suspends its unilateral application of the most-favoured-nation clause … for dividends”, 11 December 2024. Swiss FDF/SIF. https://www.estv.admin.ch/dam/en/sd-web/bifa29jbp2im/int-laender-indien-suspension-mfn-en.pdf [not in client folder]
20. Projet de loi n° 951 (2025-2026) and Rapport n° 81 (2026-2027), 21 October 2026. French Senate. https://www.senat.fr/leg/pjl25-951.html ; https://www.senat.fr/rap/l26-081/l26-0811.html [not in client folder]
21. Wet bronbelasting 2021 (BWBR0042952), arts 1.2, 2.1, 3.1, 4.1, as in force 1 January 2026. Dutch Government. https://wetten.overheid.nl/BWBR0042952/2026-01-01/ [not in client folder]
22. Regeling laagbelastende staten en niet-coöperatieve rechtsgebieden voor belastingdoeleinden (BWBR0041785), art 2a, as in force 1 January 2026; Eindejaarsregeling 2023, Stcrt. 2023, 34571, art VIII. Dutch Government. https://wetten.overheid.nl/BWBR0041785/2026-01-01/0 ; https://zoek.officielebekendmakingen.nl/stcrt-2023-34571.html [not in client folder]
23. India–Austria BIT 1999, Arts 9(2), 13(3); India–Netherlands BIT 1995, Art 16(1); DEA BIT table. Department of Economic Affairs. https://dea.gov.in/documents-bilateral-investment-treaties [INV-Sunset_Austria_BIT_1999.pdf; INV-Sunset_Netherlands_BIT_1995.pdf]

Related insights

• Netherlands or Luxembourg holding company for India – the Dutch and Luxembourg holdco comparison.
• India withholding tax rates and repatriation – domestic rates, buybacks and exit tax.
• The indirect-transfer cases: Vodafone, Cairn and the treaty backstop – how India came to tax holdco sales.
• India–Singapore tax treaty guide – grandfathered shares and Article 24A.
• India’s Gulf tax treaties: Qatar, Oman and Saudi Arabia – Gulf sellers have no exit treaty.
• Choosing a holding company jurisdiction for India – treaty, substance and investment-treaty cover compared.
• India’s investment-treaty protection reset – which investment treaties still protect investors.

Disclaimer: This article is general information, not tax or legal advice; rules change, so check the current position and take advice on your facts before acting.