India and France have jointly revised a three-decade-old tax treaty, introducing significant changes to dividend levies for large French investors while also broadening New Delhi’s authority to tax certain financial transactions. This accord could potentially offer substantial benefits to major French corporations like Sanofi, Renault, and L’Oreal, entities that have progressively increased their investments within India in recent years.
The updated agreement grants New Delhi the explicit right to levy taxes on capital gains derived from the sale of shares. This provision now encompasses transactions even where a French entity holds a minority stake, specifically less than 10%, in an Indian company.
Furthermore, the revised treaty formally removes a “most-favoured-nation” (MFN) clause. This clause had previously enabled French entities to access a lower tax rate when investing in India. The implementation of these changes awaits the completion of necessary formalities and legal approvals in both nations.
Details of the amended treaty were officially released by India’s Ministry of Finance on a Monday. This announcement arrived just days after a significant visit by French President Emmanuel Macron to India. During this visit, the two countries formally elevated their bilateral relationship to a “Special Global Strategic Partnership,” signaling a deepening of cooperation across critical sectors such as defense and space technology.
In a joint statement issued on February 17, leaders from both countries welcomed the amendment to their bilateral tax treaty. They articulated that this revision would “secure economic activity for French and Indian businesses and pave the way for greater investments and collaborations between the two countries.”
Data cited by Reuters news agency indicates that as of January 2026, France-based foreign portfolio investors held approximately $21 billion (£15.6 billion) in Indian company shares. The new regulations introduced by the treaty will require French companies that possess a stake of at least 10% in an Indian firm to pay a 5% tax on dividends. This represents a reduction from the previous rate of 10%.
Conversely, for French investors holding less than a 10% stake in an Indian company, the dividend tax rate will see an increase. It is set to rise from the previous 10% to 15%.
The removal of the MFN clause aligns with a significant 2023 ruling by India’s Supreme Court. Historically, this clause had permitted member countries of the Organisation for Economic Co-operation and Development (OECD) to claim reduced tax rates if India later extended more favorable terms to another OECD member through a separate treaty. France is an OECD member, while India holds a key partner status.
In its judgment, the Supreme Court clarified that such benefits could not be applied automatically within these treaties, stipulating that a formal notification was a prerequisite. Global consultancy and financial services firm KPMG commented in a statement that the revised treaty “realigns the bilateral trade framework with India’s current treaty policy” and adheres to international tax standards. KPMG further noted that the amendment “underscores India’s efforts to safeguard its tax base and promote a stable investment environment.”