India–France Revamp Tax Treaty, Cut Dividend Levy

India and France have agreed to revamp their 1992 double taxation treaty, cutting the dividend tax on payouts from Indian subsidiaries to French parent companies holding over 10% stake from 10% to 5%. The move is expected to boost bilateral investments and provide tax certainty for French firms with a strong presence in India, including Capgemini, Sanofi, Accor, and Pernod Ricard. Bilateral trade between the two countries stood at about $15 billion last year, reflecting strengthening economic ties.

In return for dividend tax relief, India will gain broader rights to tax capital gains from share sales by French investors, removing the earlier 10% shareholding threshold. This change could impact French portfolio investors and companies holding minority stakes in Indian firms, investments that were previously exempt from such taxation. French investors currently hold about $21 billion worth of Indian equities, a figure that has risen significantly over the past year.

The revised treaty also removes the “most favoured nation” (MFN) clause, long a point of dispute, following an Indian Supreme Court ruling that limited its automatic application. Additionally, India agreed to narrow the scope of taxation on fees for technical services, exempting routine consultancy and support services unless technical know-how is transferred. The agreement, expected to be signed in the coming weeks, still requires final approval from India’s cabinet.

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