India–France Tax Treaty Revised: Dividend Relief, Capital Gains Changes, and Investor Impact

India has formally revised its three-decade-old tax treaty with France, introducing significant changes that reduce dividend taxation for major investors while expanding India’s ability to tax capital gains and cross-border share transactions.

During the recent visit of the President of France to India, the Government of the Republic of India and the Government of the French Republic signed a Protocol amending the India–France Double Taxation Avoidance Convention (DTAC), originally signed on September 29, 1992.

The amended protocol modernizes the 1992 India–France double tax treaty, aligning it with India’s wider treaty renegotiation strategy focused on source-based taxation, anti-avoidance safeguards, and legal clarity following recent judicial and policy developments.

For French multinationals, portfolio investors, and businesses structuring investments through France, the revised treaty carries immediate implications for dividend flows, exit planning, and tax structuring in India.

Key changes under the revised India–France tax treaty

1. Dividend tax recalibration

Among the most commercially significant outcomes is the restructuring of dividend withholding tax (WHT) rates:

• 5 percent dividend tax for French companies holding at least 10 percent equity in an Indian entity (reduced from 10 percent).
• 15 percent dividend tax for holdings below 10 percent (increased from 10 percent).

The Amending Protocol replaces the earlier single-rate structure with this differentiated approach, reflecting international treaty norms and encouraging long-term, substantive investment.

Advisory perspective:

• Strategic and long-term investors stand to benefit from lower dividend leakages.
• Minority and portfolio investors may see higher recurring tax costs.
• The change could generate meaningful savings for established French investors with significant India exposure.

2. Expanded capital gains taxing rights for India

A central feature of the Protocol is the allocation of full taxing rights over capital gains to the jurisdiction in which the company is resident.

In practical terms, this means India gains broader authority to tax gains arising from the sale of shares of Indian companies, even where transactions involve offshore entities.

Advisory perspective:

• Exit structures relying on treaty-based exemptions may require reassessment.
• Portfolio investors with Indian equity exposure face higher scrutiny on disposals.
• France-based foreign portfolio investors held approximately US$21 billion in Indian equities as of January 2026, highlighting the potential market impact.

The India–France tax treaty changes illustrate a broader transition in how India approaches cross-border capital flows. Tax efficiency alone is becoming less decisive than regulatory clarity, operational presence, and long-term market strategy. Institutional investors should view this development not simply as a bilateral adjustment, but as part of India’s continuing evolution toward a more substance-driven investment framework.

3. Removal of the ‘Most Favored Nation’ (MFN) clause

The Protocol formally deletes the MFN clause from the treaty framework, bringing closure to long-running interpretational issues that intensified following the Indian Supreme Court ruling in late 2023.

Previously, treaty partners could claim more favorable terms if India later granted better conditions to another OECD country. The removal eliminates uncertainty and clearly defines treaty outcomes independent of other agreements.

Advisory perspective:

• The deletion removes ambiguity and reduces treaty-shopping opportunities.
• India–France treaty outcomes now operate on a standalone basis.

4. Updates to technical services, PE exposure, and international standards

The revised framework also introduces several structural updates designed to align the treaty with modern international tax standards:

• Alignment of the definition of Fees for Technical Services (FTS) with the India–US DTAA framework.
• Expansion of Permanent Establishment (PE) scope through the introduction of Service PE provisions.
• Updated provisions on Exchange of Information.
• Introduction of a new article on Assistance in Collection of Taxes, strengthening mutual enforcement cooperation.
• Incorporation of relevant provisions of the BEPS Multilateral Instrument (MLI) already applicable to both countries.

These changes collectively enhance administrative cooperation and facilitate seamless cross-border tax information exchange.

Advisory perspective:

• French service providers operating in India may face greater PE exposure.
• Technology, consulting, and licensing arrangements should be reassessed for withholding tax and PE risk.
• Enforcement and compliance expectations are likely to increase over time.

Commercial impact: Who is most affected?

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The revised treaty has particular relevance for large French corporate groups that have expanded India operations in recent years, including Capgemini, Accor, Sanofi, Pernod Ricard, Danone, and L’Oréal, among others.

These companies, alongside institutional portfolio investors, may experience both opportunities (lower dividend withholding) and new considerations (expanded capital gains tax exposure).

Strategic context: Treaty revision amid deepening bilateral ties

The tax protocol arrives amid broader momentum in India–France economic relations:

• Bilateral trade reportedly reached approximately US$15 billion last year.
• Recent high-level engagement included collaboration across defense manufacturing, aerospace, and advanced technology sectors.

From a policy standpoint, the treaty update supports India’s broader objective of modernizing legacy tax treaties while improving legal certainty and aligning with global standards.

Also Read: Switzerland to Suspend MFN Clause for India under DTAA from January 1, 2025

What this means for investors and businesses

For long-term strategic investors, the revised India–France treaty offers a clearer incentive structure that rewards substantive equity participation. The reduced dividend withholding tax for investors holding at least 10 percent equity improves post-tax return profiles and enhances the attractiveness of longer-duration investments in India. More broadly, the changes reinforce India’s policy direction toward encouraging real economic presence and sustained capital commitment rather than passive or purely tax-driven investment arrangements.

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Portfolio investors, however, may face a more complex operating environment. The higher dividend tax rate applicable to minority holdings, combined with expanded capital gains taxing rights for India, could alter investment economics and influence both holding periods and exit strategies. Investors relying on treaty-based efficiencies may need to revisit assumptions around post-tax returns, particularly where structures were designed under earlier interpretations of the treaty.

For multinational groups operating in India, the revised framework warrants a comprehensive review of existing cross-border structures. Holding arrangements established under previous treaty expectations may no longer deliver the same tax outcomes, making reassessment of entity structuring and financing models increasingly important. At the same time, changes to the definition of fees for technical services and the expansion of permanent establishment provisions raise potential exposure for intra-group service arrangements, meaning companies should carefully evaluate operational models, documentation, and functional substance to manage compliance and PE risk going forward.

The revised India–France protocol reflects a clear policy direction toward substance-based taxation and greater certainty in treaty interpretation. While long-term strategic investors may benefit from dividend relief, businesses relying on legacy holding structures will need to reassess how capital gains and permanent establishment rules reshape their tax exposure in India. – Krishan Aggarwal, Operations Director, Dezan Shira & Associates India Office

Implementation timeline

The Protocol will enter into effect after completion of domestic legal procedures in both India and France, and in accordance with agreed terms between the two governments.

Until then, businesses should begin preparing for changes likely to influence investment modeling, treaty reliance, and cross-border structuring decisions.

Outlook: Greater certainty, stronger cooperation

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The Amending Protocol updates the India–France DTAC in line with evolving international tax standards while balancing the fiscal interests of both jurisdictions.

From a policy perspective, the revision reflects India’s continued shift toward clearer, source-based taxation frameworks backed by stronger enforcement cooperation. For investors, this creates a more predictable, though increasingly substance-driven, treaty environment.

While dividend relief offers clear upside for strategic shareholders, expanded capital gains provisions and strengthened anti-avoidance measures signal that cross-border tax planning between India and France will require deeper structural review going forward.

Also Read: India Clarifies Tax Treaties with Mauritius, Cyprus, and Singapore

Frequently asked questions

1. When will the revised India–France tax treaty come into effect?

The Amending Protocol will become effective only after India and France complete their respective domestic legal and ratification procedures. Until then, existing treaty provisions continue to apply. Businesses should nonetheless begin reviewing structures early, as the changes may influence dividend planning, capital gains strategies, and ongoing investment models once implemented.

2. How do the new dividend tax rates affect French investors in India?

The revised treaty introduces a split dividend withholding tax regime: a reduced 5 percent rate for French entities holding at least 10 percent equity in an Indian company and a higher 15 percent rate for smaller holdings. This means strategic, long-term investors may benefit from improved post-tax returns, while portfolio or minority investors could face higher recurring tax costs.

3. Why is the expansion of India’s capital gains taxing rights important for investors?

Under the revised treaty, India gains broader authority to tax capital gains arising from the sale of shares in Indian companies, including certain offshore transactions. This reduces reliance on treaty-based exemptions that some investors previously used, meaning exit structures, investment vehicles, and holding models may need reassessment to ensure continued tax efficiency and compliance.

4. Does the revised India–France tax treaty signal a broader shift in India’s international tax policy?

Yes. The protocol reflects India’s wider move toward source-based taxation, greater emphasis on economic substance, and alignment with global anti-avoidance standards. The expansion of capital gains taxing rights, removal of the MFN clause, and incorporation of BEPS-related provisions suggest that India is prioritizing legal clarity and enforcement consistency over treaty-driven tax arbitrage. For multinational groups, this indicates a long-term policy direction rather than a one-off bilateral adjustment.

5. Should multinational groups reconsider their India holding structures because of these changes?

Companies with France-linked holding or financing structures should reassess existing models, particularly if they were designed under earlier treaty assumptions. The revised dividend regime may benefit strategic shareholders, but expanded capital gains taxation and broader permanent establishment rules could alter overall tax efficiency. Board-level reviews should examine substance requirements, intercompany service arrangements, and exit strategies to ensure structures remain commercially and fiscally sustainable.

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