Danish tax on Indian mutual funds, and the year gap it creates

Denmark taxes the movement in value, not the sale. Aktieavancebeskatningsloven 19 stk. 1 nr. 2 defines an investeringsselskab as an entity that invests in securities and whose units must, on the holder's demand, be repurchased out of the entity's own assets at a price not materially below net asset value. An open-ended SEBI scheme does exactly that. There is no EU or UCITS condition on that route, so being an Indian fund does not keep you out of it.

Once you are inside ABL 19, ABL 23 stk. 8 makes the lagerprincippet compulsory. You compare the value at the start of the year with the value at the end and pay tax on the difference, every year, whether or not you sold anything. The same paragraph says that where no market price can be established, or where it is lower than the repurchase value, the repurchase value is used, which is how the rule hooks straight onto your scheme's published NAV.

There is one gate before any of this, and it is worth knowing your Danish adviser has to clear it. Den juridiske vejledning treats it as a precondition that the entity is a separate tax subject in its own right. An Indian mutual fund scheme is constituted as a trust under the SEBI regulations, not as a company, and no published Danish ruling deals with an Indian scheme. The usual criteria (no personal liability for unitholders, returns shared in proportion to capital contributed, its own constitution and accounts, an open investor base, and its own governing organs able to act with binding effect) are comfortably met by a typical open-ended scheme, but it is a per-scheme call and not an assumption.

Your Indian equity fund lands in the capital income bucket, and the reason has nothing to do with what it holds. ABL 19 B stk. 2 gives the better treatment, aktiebaseret status, to an investment company that is at least 50% in equities AND that has notified Skattestyrelsen it is share-based. ABL 19 B stk. 4 sets the deadline: the notice has to be in by 1 November of the calendar year before the year it applies from.

The notice is the fund's to give, not yours. Skattestyrelsen publishes the list of companies that have filed one. Indian asset managers are not on it, and nothing you file changes that. ABL 19 B stk. 5 and ABL 19 C stk. 2 then make the fund obligationsbaseret by default.

That single administrative fact decides your rate.

Personskatteloven 4 a stk. 1 nr. 4 puts ABL 19 B gains in aktieindkomst, stk. 2 of the same section expressly pushes ABL 19 C out of it, and personskatteloven 4 stk. 1 nr. 5 lands ABL 19 C in kapitalindkomst.

So a 100% Indian equity scheme is taxed in Denmark on the same footing as a bond fund. Nobody involved did anything wrong. The deadline simply belongs to a party with no reason to meet it.

Denmark taxes the growth as it happens. India taxes it once, at the end. That mismatch is the whole problem.

Ligningsloven 33 stk. 1 gives credit for foreign tax, capped at the proportionate Danish tax on that foreign income, and stk. 2 caps it again at what the treaty gives India an unconditional right to charge. Den juridiske vejledning C.F.4.1 is explicit that the foreign tax does not have to have been paid in the year it relates to: a later assessment and payment abroad entitles you to relief in the income year the income was earned.

That sounds like the answer, and only half of it is. Relief in the year the income was earned means going back to the older Danish years, which is a reopening exercise with its own deadline. And no published Danish guidance says how one lump of Indian tax charged in the redemption year is allocated back across four or five Danish lager years. Anyone who tells you that part is settled has not looked.

Which is why the useful work sits on the Indian side, before the deduction happens rather than after.

The strongest India-side position is that India has no right to tax the gain at all.

Article 14 of the India-Denmark treaty allocates capital gains by category. Paragraph 5 lets the source state tax gains on shares of a company resident there, but only where the shares represent at least 10 per cent of the share capital. Paragraph 6 is the residual: gains on any property not covered by paragraphs 1 to 5 are taxable only in the state where the seller is resident.

Units in an Indian mutual fund scheme are not shares in a company, because the scheme is a trust. On that reading the gain falls in Article 14(6) and belongs to Denmark alone, so the Indian deduction is not a credit to be claimed, it is money to be recovered in full. ITAT Mumbai reached exactly that conclusion on the equivalent residual clause in the India-Singapore treaty in Anushka Sanjay Shah (March 2025), holding that a share means a share in the share capital of a company while a mutual fund is a trust, and that the Securities Contracts (Regulation) Act lists shares and units as separate things. ITAT has since read the India-Mauritius treaty the same way. These are tribunal decisions rather than settled law, and the department can argue the other way.

Three things follow, in order of how much they save:

1. A nil or lower deduction certificate under Section 197 on Form 13 (Section 395 and Form 128 from FY 2026-27), in hand before the redemption. A nil certificate means the fund house never deducts. A refund claim ties the same money up for a year or more. 2. Your Danish residence certificate and Form 10F (Form 41 from FY 2026-27) on the folio. Section 90(4) makes the certificate a condition of claiming the treaty at all, and Section 90(2) is what lets you apply the treaty where it is more beneficial. 3. The Indian return, where tax has already come off. Most fund houses deduct on the full gain at the statutory rate, without your Rs 1,25,000 long-term exemption, so there is usually an over-deduction to recover even before the treaty argument.

There is a second line of defence under this treaty that the Singapore cases never needed. Even if units were treated as shares in a company, Article 14(5) only lets India tax where the shares alienated represent at least 10 per cent of the share capital, and an ordinary unitholder is nowhere near that. So the units-are-not-shares point is not carrying the whole case on its own.

What does make it go the other way: a real-estate-heavy vehicle such as a REIT, because Article 14(4) as replaced by MLI Article 9(4) reaches shares or comparable interests including interests in a trust, and MLI Article 7's principal purpose test, which sits over the whole claim. There is also the practical risk that the assessing officer declines the nil certificate and leaves you claiming a refund instead.

Denmark starts your cost from the day you arrived. India never does.

ABL 37, read with kildeskatteloven 9, treats assets that were not already inside Danish tax as acquired at their market value on the day you became Danish resident. ABL 1 stk. 2 extends that to transferable investment certificates, so it reaches fund units. Everything your portfolio gained before you landed in Copenhagen is therefore outside Danish tax, and it is your evidence that establishes it.

There is a second reason to file it, and it is the one people find out about too late. ABL 19 D stk. 3 says a loss on a holding you owned before Danish liability began is deductible only if you reported that holding to Skattestyrelsen by the oplysningsfrist for the arrival year. Miss it and a bad year gives you nothing back, while the good years were all taxed.

The pack itself is a document no Indian AMC issues on request, which is why it has to be built:

- Scheme name, plan, option and ISIN for every folio - Units held on the exact date Danish liability began - NAV on that date, from AMFI's published history - The CAMS or KFintech consolidated account statement behind it - Your original Indian cost and acquisition dates, which India keeps using regardless

That last line is why the two returns will never show the same gain. Denmark measures from your arrival value, India from what you actually paid years earlier, and both numbers have to be defensible on their own terms.

Rohan pays Indian tax on a gain Denmark never taxed, and Danish tax on gains India will not credit.

He moved to Aarhus and became Danish resident on 1 July 2021. His Indian equity fund units were worth Rs 30,00,000 that day. He had bought them in 2019 for Rs 18,00,000.

He redeems in 2026 for Rs 46,00,000.

The fund house deducts long-term tax at 12.5% on the full Rs 28,00,000, so Rs 3,50,000 before surcharge and cess, and without his Rs 1,25,000 exemption.

In 2026 Denmark taxes only that year's slice of NAV movement, so there is very little Danish tax on this income for the Rs 3,50,000 to sit against. The Danish tax it was meant to offset belongs to every year he has held the units since arriving, not to 2026.

If the Article 14(6) position holds, none of that matters: India had no taxing right and the Rs 3,50,000 comes back on his Indian return. A nil certificate obtained before he redeemed would have meant it was never deducted.