India, France overhaul tax treaty; dividend rates cut, end MFN clause: Report

India and France have agreed to a sweeping revision of their three-decade-old tax treaty, a move that will halve the dividend tax burden for many French companies operating in India while simultaneously expanding New Delhi’s authority to levy capital gains tax on French investors, according to confidential Indian government documents reviewed by Reuters. 

The proposed amendments — the first major update to the 1992 pact — come as bilateral trade touched $15 billion last year and as Prime Minister Narendra Modi and French President Emmanuel Macron deepen economic and strategic cooperation. Talks to modernise the treaty began in 2024, aligning it with global norms on tax transparency. 

“The proposed amending protocol will boost flow of investment, technology and personnel between India and France, and will provide tax certainty,” one of the Indian government documents from August said, Reuters reported.

Business Today was unable to verify the development independently. 

Dividend taxes rebalanced 

A central change is the reduction of dividend tax to 5% from 10% for French companies holding over 10% equity in an Indian entity. For minority investors — those holding under 10% — the tax rate will rise to 15% from 10%. 

Several French firms with sizable India footprints, including Capgemini, Accor, Sanofi, Pernod Ricard, Danone and L’Oréal, are set to be affected. Capgemini Technology Services India alone declared a dividend of $500 million in FY24. 

Indian filings show multiple French-linked entities — such as BNP Paribas Securities India and TotalEnergies Marketing India — have routinely distributed dividends. 

India gains wider taxing powers 

Another major shift concerns capital gains taxation. 

Current rules allow India to tax gains only if a French investor holds more than 10% in an Indian company. The revised treaty removes this threshold, granting India full source-based taxation rights on all equity share transfers. 

France-based foreign portfolio investors hold $21 billion in Indian equities as of November 2025, up one-third from 2024. Data from Tracxn shows over 40 French companies hold minority stakes below 10% in Indian firms — investments that were previously exempt but will now fall under India’s capital gains tax net. 

Narrower tax on technical services 

India has also agreed to France’s request to limit tax on technical service fees only to transactions involving transfer of technical know-how, excluding routine consultancy, design support, cybersecurity services, and market research. 

A long-standing dispute over the interpretation of the most-favoured nation (MFN) clause was a key trigger for renegotiation. 

A 2023 Supreme Court ruling held that MFN benefits could not automatically apply, alarming France, which feared additional tax costs of up to €10 billion on existing contracts, an official familiar with discussions told Reuters. 

New Delhi and Paris have now agreed to delete the MFN clause entirely, marking a decisive end to years of litigation and uncertainty. According to Indian documents cited by Reuters, the clause historically benefitted only France and had become a source of “tax uncertainty and protracted litigation.” 

Officials from both countries have finalised the new provisions, which are expected to be signed in the coming weeks, as per the Reuters report.