India-France Tax Treaty Amendment: Dividend Tax To Double Taxation – What It Means for Investors, NRIs, Corporates

After announcing a partnership in several key sectors including defence, critical minerals, among many others, India and France have signed a major protocol amending their 1992 Double Taxation Avoidance Convention (DTAC), introducing sweeping changes that will impact cross-border investors, multinational companies, NRIs and high-net-worth individuals.

The revised framework tightens source-based taxation rules, deletes the Most Favoured Nation (MFN) clause, reshapes dividend taxation and expands the definition of permanent establishment, all aimed at bringing greater clarity and alignment with global tax standards.

India-France tax treaty amendment: What is the big shift in capital gains taxation?

One of the most significant changes concerns capital gains from the sale of shares.

Under the amended treaty, the country where the company is located gets full taxing rights over capital gains from the sale of its shares. This means, if a French resident sells shares of an Indian company, India can tax the capital gains. On the other hand, if an Indian resident sells shares of a French company, France can tax the gains under its domestic laws.

Previously, the rules allowed for more interpretational flexibility. The new structure removes ambiguity and strengthens source-based taxation. For investors, this brings certainty, but it also means closer attention to domestic tax rules in the country where the company operates.

Why has the MFN clause been scrapped?

The removal of the Most Favoured Nation (MFN) clause is another key development. Earlier, France could claim more favourable tax treatment if India granted better terms to another country in a subsequent treaty. This created legal disputes and interpretational challenges.

With the MFN clause now deleted, treaty benefits are limited strictly to what is written in the India-France agreement. Future concessions India grants to other countries will not automatically apply to France. For governments, this reduces litigation risk while for investors, it increases predictability.

How has dividend taxation changed?

The old treaty imposed a flat 10% withholding tax on dividends. The revised structure introduces a split rate – 5% if the shareholder holds at least 10% of the company’s capital, and 15% in all other cases. This change benefits long-term strategic investors with substantial shareholding, while smaller investors may face a higher withholding rate than before.

What about ‘fees for technical services’?

The definition of fees for technical services (FTS) has been aligned with the India–US tax treaty framework. This could affect IT and consulting firms, engineering and advisory companies, cross-border service providers.

The alignment brings greater consistency across India’s major tax treaties but may alter how certain service payments are taxed.

How does tax treaty amendment strengthens tax cooperation?

The amendment also updates provisions on exchange of information, introduces a new article on assistance in collection of taxes, aligns the treaty with international transparency standards. According to India’s Central Board of Direct Taxes (CBDT), the changes will facilitate seamless exchange of information and strengthen mutual tax cooperation between the two countries.

The revised treaty impacts Retail investors buying overseas stocks, HNIs with cross-border holdings, NRIs investing in India or France, corporates operating in both jurisdictions, venture capital and private equity investors. In simple terms, if you are a tax resident of one country and earn income – dividends, capital gains or service income – from the other, these changes apply to you.

Does double taxation still apply?

No. The treaty continues to provide relief against double taxation. If tax is paid in the source country (where the company is based), the country of residence typically allows a tax credit, preventing the same income from being taxed twice.

The protocol was signed during French President Emmanuel Macron’s recent visit to India, signalling stronger economic coordination between the two countries.