The 10 per cent line, and which side of it you are on
One number decides whether India can tax your gain at all.
Article 14(5) says gains on shares in a company resident in a contracting state may be taxed in that state, provided the shares represent at least 10 per cent of the company's share capital. Article 14(6) then sweeps up everything the earlier paragraphs did not reach and gives it to the seller's state of residence alone.
| Your position | Which paragraph | Who may tax the gain | What the Indian deduction is |
|---|---|---|---|
| An ordinary portfolio holding, well under 10% | 14(6) | Denmark only | Recoverable in full |
| A stake of 10% or more of the share capital | 14(5) | India as well | A credit on your Danish return |
| Shares in a company that is principally Indian property | 14(4) | India, whatever the size | A credit on your Danish return |
Most Danish-resident NRIs are in the first row and are being taxed as though they were in the second.
There is a wrinkle in the drafting worth knowing about, because it points both ways. The treaty measures the shares alienated, not the shares owned, and Skattestyrelsen's own walkthrough of this treaty puts it the same way. So on the face of it a large holder who sells in pieces is looking at each disposal against the 10 per cent line. Anyone tempted by that arithmetic should read the next section first, because a disposal shaped to get under a treaty threshold is the exact fact pattern the principal purpose test was written for.
The carve-outs that override the 10 per cent line
Two provisions take the threshold away, and one of them was added after the treaty was signed.
Article 14(4), property-rich companies. Gains on shares of a company whose property consists directly or indirectly principally of immovable property situated in a state may be taxed in that state, with no percentage test at all. A promoter holding in a land-owning private company is source-taxed in India however small the stake.
The MLI. The India-Denmark convention is a Covered Tax Agreement. Skattestyrelsen's walkthrough of this treaty gives the MLI effect in Denmark from 1 January 2020 for withholding taxes and 1 January 2021 for other taxes, and records that MLI Article 9(4) replaces Article 14(4) outright. The replacement is wider in two ways: it applies where more than 50 per cent of the value is attributable, directly or indirectly, to immovable property at any time in the 365 days before the disposal, so a company that was property-heavy last month cannot be sold clean this month, and it reaches shares or comparable interests, such as interests in a partnership or a trust.
MLI Article 7, the principal purpose test. It sits over the entire claim. Relief is denied where obtaining it was one of the principal purposes of an arrangement, unless granting it is shown to accord with the object and purpose of the treaty provision. That is not a problem for someone who genuinely lives and works in Denmark and simply owns Indian shares. It is a problem for a residence or a disposal pattern arranged around the treaty.
The practical read: the under-10% position is strong when it describes what you actually own, and fragile when it describes what you did to the holding before selling.
What India takes off while you are in the right
Being outside India's taxing rights does not stop the deduction. Section 195 (Section 393(2) from FY 2026-27) requires the payer to withhold on a payment to a non-resident, and the resident-only deduction provisions people quote do not apply to you at all.
The rate the payer applies is the domestic one, since the treaty position is yours to claim, not theirs to assume.
| What you sold | Domestic Indian rate before the treaty |
|---|---|
| Listed equity held over a year, STT paid | 12.5% under Section 112A, above the Rs 1,25,000 annual exemption |
| Listed equity held a year or less, STT paid | 20% under Section 111A |
| Unlisted shares held over two years | 12.5% long-term |
Surcharge on capital gains is capped at 15%, so the higher slabs that apply to very large incomes do not reach them, and a 4% health and education cess sits on top.
Two reliefs people expect are not there on the long-term routes. There is no indexation, and the foreign-currency computation in the first proviso to Section 48 is switched off as well: the third proviso disapplies it for Section 112A assets, and Section 112(1)(c)(iii) computes the unlisted gain without it. So those gains are plain rupee figures and currency movement since you bought works against you rather than for you.
The money leaves India first and the argument happens afterwards, unless you get in front of it.
The Indian paperwork that turns the treaty into cash
The certificate is the whole game. A nil deduction certificate stops the money leaving. A refund claim gets it back a year or more later.
1. Your Danish residence certificate. Skattestyrelsen certifies your full Danish tax liability and treaty residence on blanket 02.034 A, the version used where a double tax agreement exists. It is for individuals and sole proprietorships, and it has to name India and the year. 2. Form 10F (Form 41 from FY 2026-27), the self-declaration that goes with it. Section 90(4) makes the residence certificate a condition of claiming the treaty, and Section 90(2) is what lets you apply the treaty where it is more beneficial. 3. A Section 197 application on Form 13 (Section 395 and Form 128 from FY 2026-27), filed before the sale, asking for nil deduction on the ground that Article 14(6) gives the gain to Denmark. The assessing officer needs to see the position, not just be told it. 4. The evidence behind the under-10% claim. For an unlisted company that means the paid-up share capital from the company's filings and your shareholding against it. For a listed company it means the demat holding statement and the company's issued capital. 5. The Indian return. File it even where India ends up taxing nothing. It is what carries the treaty claim, recovers anything already deducted, and gives you a processed Indian tax position your Danish adviser can rely on.
What makes the assessing officer harder to persuade: a stake anywhere near the line, a company with land on its balance sheet, or a recent restructuring of the holding. Those are worth settling before the sale rather than in a refund claim afterwards.
Denmark taxes the same sale on a different number
The gain on your Indian return and the gain on your Danish return will not match, and both are right.
Aktieavancebeskatningsloven 37, read with kildeskatteloven 9, gives shares that were not already inside Danish tax a cost equal to their market value on the day you became Danish resident. Your actual acquisition date is unchanged, only the value. India keeps using what you originally paid. So Denmark taxes the growth since you arrived and India, where it can tax at all, taxes the growth since you bought.
For listed shares the arrival value is reconstructible from exchange closing prices on that date. It is India-side evidence, it gets harder to assemble every year, and it is the only thing that keeps pre-arrival growth out of the Danish figure.
One more contrast is worth having in view, because it surprises people who hold both. Shares are taxed in Denmark when you sell them, as share income. Units in an Indian mutual fund are taxed every year on the movement in value, whether or not you sell, and usually as capital income rather than share income, for reasons that have nothing to do with what the fund holds. Two different principles on two things that feel identical from India. Which produces the larger Danish bill depends on your holding period and the rest of your Danish income, so it is a computation on your own numbers rather than a rule of thumb.
Sanjay's 2 per cent, and the same sale at 12 per cent
The same sale produces a full Indian refund or a permanent Indian tax, and the only thing that changes is the size of the stake.
Sanjay lives in Copenhagen and sells his holding in an unlisted Indian company for Rs 60,00,000. He paid Rs 15,00,000 for it years ago, so the long-term gain is Rs 45,00,000. The buyer deducts under Section 195 at 12.5% plus the 4% cess, which is Rs 5,85,000.
If the shares he sold are 2% of the company's share capital. Article 14(5) is not engaged, so Article 14(6) applies and the gain is taxable only in Denmark. India had no right to the Rs 5,85,000, and the Indian return brings all of it back. Had he obtained the nil certificate first, it would never have been deducted.
If they are 12%. Article 14(5) is engaged and India may tax the gain. The Rs 5,85,000 stands, he settles the final Indian liability on his Indian return, and Denmark gives an ordinary credit under Article 23(3)(a), capped by Article 23(3)(b) at the Danish tax on the same gain. Anything Denmark's cap will not absorb stays with him.
And if more than half the company's value turns out to sit in Indian immovable property, the 2% version collapses into the 12% version, because the property-rich rule never asks about the size of the holding.