India and France signed a sweeping modification to their 34-year-old bilateral tax treaty on February 17 throughout French President Emmanuel Macron’s state go to to New Delhi, restructuring the phrases underneath which French corporations and buyers are taxed on dividends and capital positive aspects from Indian investments, and completely resolving a authorized dispute over the treaty’s most-favoured-nation clause that had destabilised cross-border tax planning between the 2 international locations since a landmark Supreme Courtroom ruling in 2023.
The Amending Protocol was signed on 23 February 2026, revising the India–France Double Taxation Avoidance Conference initially signed on 29 September 1992. The Protocol was inked by Ravi Agrawal, Chairperson of the Central Board of Direct Taxes, on behalf of the Authorities of India, and Thierry Mathou, Ambassador of France to India, representing the French Republic.
Essentially the most instantly consequential change governs how dividends paid by Indian corporations to French shareholders are taxed. The taxation of dividends will now comply with a two-tier construction as an alternative of the prevailing flat 10 per cent withholding tax fee. Dividends will entice 5 per cent tax for shareholders holding no less than 10 per cent of the corporate’s capital, and 15 per cent in all different circumstances. The reform rewards long-term strategic buyers, he Sanofi, L’Oréal, Capgemini, Pernod Ricard, Danone, and Accor subsidiaries whose French father or mother corporations maintain important controlling or substantial minority stakes in Indian operations, whereas making use of a heavier burden on portfolio buyers and smaller minority shareholders, whose dividend receipts can be taxed at a fee 5 share factors above the earlier flat fee.
The transfer might impression France-based international portfolio buyers that owned $21 billion price of shares in Indian corporations as of January 2026, in line with Indian share depository knowledge.
The second main structural change transfers capital positive aspects taxing rights decisively to India. The up to date treaty offers full taxing rights on capital positive aspects from share gross sales to the nation the place the corporate is predicated. If a French investor sells shares of an Indian firm, India will now have full rights to tax the positive aspects. This rule clarifies which nation can tax such earnings, eliminating confusion. Beforehand, India’s proper to tax capital positive aspects was restricted to circumstances the place the French vendor held greater than ten % of the Indian firm’s share capital. Beneath the brand new protocol, that possession threshold is eradicated totally: India has secured broader rights to tax capital positive aspects arising from the sale of shares by French buyers, eradicating the prevailing possession threshold that restricted India’s taxing rights.
The deletion of the most-favoured-nation clause removes the supply that had been probably the most contentious component of the treaty for the previous two years.
The MFN clause had allowed international locations to routinely declare decrease tax charges if India struck extra beneficial phrases with one other OECD nation. The Supreme Courtroom, nevertheless, dominated that international locations can not routinely achieve this, creating tax uncertainty. The difficulty turned one of many major drivers of the renegotiation and the international locations finally agreed to delete the supply. The Amending Protocol now deletes the MFN clause that existed each in Article 7 of the treaty and within the protocol itself, thereby ending long-standing interpretational disputes. France turns into the most recent in a collection of treaty companions to lose MFN standing in India’s community of double-taxation agreements. Switzerland suspended the appliance of its personal MFN clause with India on January 1, 2025, for a similar purpose.
Past the headline modifications, the protocol introduces a number of technical modernisations that reach India’s tax base over cross-border providers. The definition of “Charges for Technical Providers” was tweaked to align the language used within the India–US tax treaty, and the idea of “Everlasting Institution” was expanded to incorporate a Service PE, bringing extra cross-border service exercise into the tax internet.
A Service PE provision now signifies that providers carried out in India past agreed thresholds for associated or unrelated events will set off a PE and source-country taxation of attributable earnings. The protocol additionally updates alternate of knowledge provisions, introduces a brand new article on mutual help in tax assortment, and incorporates all related Base Erosion and Revenue Shifting Multilateral Instrument provisions relevant between the 2 international locations, aligning the treaty with the OECD’s post-2015 worldwide tax structure.
Abheet Sachdeva, accomplice for mergers and acquisitions tax at Nangia International, stated the protocol concurrently serves investor and sovereign fiscal pursuits. “The dividend fee rationalisation, coupled with deletion of the MFN clause, will present a transparent impetus for French FDI into India. On the similar time, full capital positive aspects taxing rights with the supply state is a vital balancing measure that protects Indian income,” he stated.
KPMG described the revised treaty as one which “realigns the bilateral commerce framework with India’s present treaty coverage and worldwide tax requirements,” including that it “underscores India’s efforts to safeguard its tax base and promote a steady funding atmosphere.”
The tax treaty revision was one in all a number of deliverables from Macron’s February 17 go to, at which the 2 international locations elevated their bilateral relationship to a “Particular International Strategic Partnership” and introduced deepened cooperation in defence procurement and area know-how. Bilateral commerce between India and France stood at $15 billion in 2025. Each international locations’ finance ministries described the treaty revision as creating the understanding essential to broaden that determine considerably.
The treaty will come into impact after finishing formalities and authorized approval processes in each international locations. No timeline for ratification was specified.
