India and France have overhauled their three-decade-old bilateral tax treaty, introducing sweeping revisions that lower dividend taxes for major French investors while simultaneously strengthening New Delhi’s authority to tax certain cross-border transactions.
The updated agreement is expected to provide a boost to leading French multinationals such as Sanofi, Renault and L’Oréal, all of which have significantly expanded their footprint in the Indian market in recent years.
One of the most consequential changes grants Indian tax authorities the explicit right to levy capital gains tax on the sale of shares in Indian companies, even in instances where a French investor holds less than a 10% stake. This provision broadens Delhi’s taxation powers and aims to prevent potential revenue leakage through minority share transactions structured abroad.
The revised pact also eliminates the long-standing most-favoured-nation (MFN) clause, a provision that previously enabled French entities to automatically claim lower tax rates if India subsequently offered more favourable terms to another country under a separate treaty. The amended agreement will formally take effect once both governments complete the required domestic legal procedures and official notifications.
Details of the renegotiated treaty were made public by India’s finance ministry on Monday, shortly after French President Emmanuel Macron concluded a high-profile visit to India. During the trip, both nations agreed to elevate their ties to what they described as a “Special Global Strategic Partnership,” signalling deeper collaboration across defence, space technology, trade and advanced industries.
In a joint statement issued on 17 February, the two sides welcomed the treaty revision, describing it as a measure that would “secure economic activity for French and Indian businesses and pave the way for greater investments and collaborations between the two countries.” Officials indicated that the changes are designed to modernise the tax framework in line with evolving international standards while preserving investor confidence.
According to data cited by Reuters, France-based foreign portfolio investors held approximately $21bn (£15.6bn) worth of shares in Indian companies as of January 2026, underlining the scale of French financial exposure to India’s fast-growing economy. Bilateral trade between the two countries reached around $15bn last year, reflecting steadily expanding commercial ties.
Under the revised rules, French companies that hold at least a 10% stake in an Indian firm will now pay a reduced dividend tax rate of 5%, down from the previous 10%. However, investors with holdings below the 10% threshold will face a higher dividend tax of 15%, up from 10% earlier. The differentiated structure appears designed to encourage long-term strategic investment while increasing revenue from smaller portfolio holdings.
The removal of the MFN clause aligns with a landmark 2023 ruling by Supreme Court of India. In that judgement, the court clarified that benefits under such clauses could not be applied automatically without a formal government notification. Previously, OECD member states could argue for lower rates if India granted preferential treatment to another member country under a separate tax treaty.
France is a member of the Organisation for Economic Co-operation and Development (OECD), while India holds the status of a key partner. The court’s decision effectively tightened the procedural requirements for claiming MFN-based advantages, reinforcing the government’s discretion in implementing treaty concessions.
Global consultancy firm KPMG said in a statement that the updated treaty “realigns the bilateral trade framework with India’s current treaty policy” and reflects prevailing international tax norms. The firm added that the move underscores India’s broader strategy to protect its tax base while simultaneously fostering a predictable and stable investment climate for foreign businesses.
Overall, the treaty revision marks a significant recalibration of the fiscal architecture underpinning India–France economic relations, balancing incentives for major investors with strengthened safeguards for India’s revenue interests as the partnership enters a new strategic phase.
