What India can and cannot tax here
On a normal private portfolio, nothing. What decides it is your stake, not the asset type.
| What you sold | Indian tax on the gain |
|---|---|
| Listed company shares, stake under 10% | Nil in India, taxable only in Spain |
| Listed company shares, stake 10% or more | 12.5% over Rs 1.25 lakh long term, 20% short term (Sections 112A and 111A) |
| Equity or debt mutual fund units | Nil in India, taxable only in Spain |
| Shares or units mainly backed by Indian property | Taxable in India whatever your stake |
The 10% is measured on your holding in that one company, so a diversified portfolio never gets near it. The property-rich row is the one that catches people out: a real-estate fund or an InvIT can be taxable in India even though an equity fund is not, so check what each fund actually holds before you treat the whole folio the same way.
Spain taxes the whole portfolio instead
Spain taxes the whole gain instead, in the savings base, at rates that start at 19 per cent and rise to 30 per cent on the largest gains. You also report the Indian holdings themselves on the Modelo 720 once they pass the reporting threshold, which is a separate obligation from the tax and carries its own penalties.
This treaty carries two anti-abuse gates, the Limitation of Benefits article added by the 2012 Protocol and the multilateral instrument's Principal Purpose Test, so the Spanish residence has to be real and not arranged for the exemption. And the multilateral instrument rewrote the property-rich clause with a 365-day look-back that reaches comparable interests, so a fund mainly backed by Indian property stays taxable in India even though an equity fund does not.
So the treaty does not make the gain tax-free, it moves it. There is no Indian tax left to credit, which makes the Spanish computation the one that decides what you actually pay.
The India paperwork: TDS, TRC and Form 10F
Give the fund house your Spanish Tax Residency Certificate and Form 10F, now Form 41, before you redeem, claiming the Article 14 exemption. Without them it deducts TDS under Section 195, which becomes Section 393(2) from FY 2026-27, because it has no way of knowing your stake or your residence.
Before a large redemption, go one better and get a nil or lower deduction certificate, Form 13 under Section 197, now Form 128 under Section 395. That stops the withholding at source rather than leaving you to chase it.
If tax comes out anyway, you reclaim it on an Indian return, ITR-2, with the treaty position and the evidence behind it: your stake in each company and what each fund actually holds.
A worked example: Anita's Madrid sale
Anita, an NRI in Madrid, redeems Indian equity mutual funds for a gain of Rs 8 lakh and sells listed Indian shares held nine months for a short-term gain of Rs 2 lakh. The shares are a small holding in a large listed company, well under 10%.
India taxes neither. The Rs 8 lakh unit gain sits in the residence-only residual clause, and the Rs 2 lakh share gain sits below the 10% line, so Article 14 leaves both taxable only in Spain. Without the paperwork the fund house would still withhold on the Rs 8 lakh, so Anita lodges the Spanish TRC and Form 10F first, and the whole Rs 10 lakh is reported and taxed in Spain alone.
Change one fact and the answer changes. Had Anita held 10% or more of that company, or had it been a company whose value sits mainly in Indian property, India would tax that share gain and Spain would relieve it under Article 25.