India Revises Tax Treaty with France

Picture Credit: Global Order

India has overhauled its three decade old tax treaty with France, lowering dividend taxes for large French investors while expanding New Delhi’s authority to tax certain cross border transactions. The finance ministry said the revised agreement recalibrates dividend tax rates and clarifies capital gains rules, potentially reshaping the tax exposure of French businesses and portfolio investors operating in India.

Under the updated framework, French companies holding at least 10% in an Indian firm will see dividend taxes cut to 5%, down from 10%. However, minority shareholders with stakes below 10% will face a higher dividend tax rate of 15%, up from the previous 10%. The change is expected to benefit major long term investors while increasing the burden on smaller portfolio holdings.

The treaty revision could affect several prominent French companies with expanding operations in India, including Capgemini, Accor, Sanofi, Pernod Ricard, Danone, and L'Oréal. Beyond dividend taxation, India will now have clearer rights to tax capital gains arising from the sale of shares by French entities, even when their holdings fall below the 10% threshold. French based foreign portfolio investors held roughly $21 billion in Indian equities as of January 2026, according to depository data.

A key feature of the renegotiation is the removal of the “most-favoured-nation” (MFN) clause, following a 2023 Indian Supreme Court ruling that restricted automatic claims to lower tax rates negotiated under separate treaties with other OECD countries. The decision created uncertainty over how MFN provisions should be applied, prompting both sides to formally delete the clause to prevent future disputes.

The treaty update comes amid strengthening economic and strategic ties between the two nations. Bilateral trade reached around $15 billion last year, and during President Emmanuel Macron’s recent visit to India, the countries announced expanded defence cooperation, including joint production of Rafale fighter jets and helicopters. The revised tax pact signals both a deepening commercial relationship and a push for greater clarity in cross border taxation.