India-France Tax Treaty Overhaul Cuts Dividend Tax and Expands Capital Gains Rules

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India and France have agreed to update their 1992 tax treaty. The deal was reached this month, according to Reuters. It will cut dividend tax for major French investors in India and give India wider rights to tax share sales. Talks took place as both nations moved to modernise old tax rules. The agreement is expected to be signed soon.

This change matters because French companies hold large stakes in Indian firms. Many have paid high dividend tax in recent years. The update comes as trade ties rise and political ties strengthen. It also follows years of disputes over the most‑favoured‑nation clause.

India-France Tax Treaty: Key Changes to Dividend and Capital Gains Rules

According to Reuters, the revised treaty will lower dividend tax for French companies that own more than 10% in an Indian entity. The rate will drop from 10% to 5%. This may save millions for firms such as Capgemini, Accor, Sanofi, Pernod Ricard, Danone and L’Oréal. Many of these companies have paid large dividends in India.

Smaller French shareholders will face higher tax. Those with less than 10% stakes will now pay 15%, up from 10%. Several French units in India, including Capgemini Technology Services India, have reported major dividend payouts. Capgemini’s unit alone issued around $500 million in dividends in 2023–24.

The treaty also removes the 10% threshold for taxing French share sales. India will now have full rights to tax gains on equity shares held by French investors. Reuters notes that French portfolio investors hold about $21 billion in Indian stocks. Many also hold minority stakes that were not taxable under the old rules.

Impact on Investors and End of MFN Clause

Tax experts told Reuters that French portfolio investors will see the biggest impact. More than 40 French companies hold minority stakes in Indian firms. These were earlier exempt under the treaty. Now they will face tax on gains from share sales.

India will also drop the most‑favoured‑nation clause from the treaty. This clause had given France certain tax advantages. But a 2023 Supreme Court ruling said MFN benefits cannot apply automatically. That ruling created uncertainty for French firms. French officials estimated a possible tax cost of 10 billion euros on existing contracts.

The new treaty aims to remove this risk. It also limits tax on technical services. France asked India to tax such services only when technical know‑how is transferred. This change will help firms offering design, cybersecurity, and research services.

The India-France tax treaty update marks a major shift. It cuts dividend tax for big investors and expands India’s taxing rights on capital gains. The move is expected to reshape investment decisions as the new India-France rules take effect.

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Q1: What is the main change in the India-France tax treaty?

The main change is the new dividend tax rate. Large French shareholders will pay 5% instead of 10%. India also gains wider rights to tax share sales.

Q2: How does the treaty affect minority French investors?

Minority investors will now pay 15% tax on dividends. Their capital gains will also be taxed in India. These were exempt before.

Q3: Why was the MFN clause removed?

The clause caused disputes after a 2023 Supreme Court ruling. France feared major tax losses. Both sides agreed to delete it to avoid litigation.

Q4: Which companies will be most affected?

Major French firms like Capgemini, Sanofi, Accor, and Pernod Ricard may see changes. Portfolio investors with minority stakes will feel the biggest impact.

Q5: When will the new treaty come into effect?

According to Reuters, both sides have agreed on the terms. The treaty will be signed soon after final approval by India’s cabinet.

Trusted Sources: Reuters, Associated Press, BBC News