India–France Tax Treaty Amended: Lower Dividend Tax to Boost Trade and Investment
Split Rates Replace Flat 10% Dividend Tax
Protocol Enhances Certainty in Cross-Border Transactions
By Legal Reporter
New Delhi: February 24, 2026:
India and France have signed a protocol amending their Double Taxation Avoidance Convention (DTAC), modernizing a 34-year-old treaty to align with global tax standards. The amendment, signed during French President Emmanuel Macron’s recent visit to India, introduces lower dividend tax rates, clarifies capital gains taxation, and strengthens cooperation against tax evasion.
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This move is expected to boost cross-border trade, investment, and employment opportunities, while providing greater certainty to businesses operating between the two countries.
Key Changes in the Treaty
- Dividend Taxation:
- Earlier: Flat 10% tax on dividends.
- Now: Split rates — 5% for shareholders holding at least 10% of capital, 15% for all others.
- Capital Gains: Taxation will now be based on the residency of the company, reducing ambiguity.
- Most Favoured Nation (MFN) Clause: Deleted, bringing clarity and avoiding disputes over interpretation.
- Fees for Technical Services: Definition aligned with the India–US DTAC, ensuring consistency.
- Permanent Establishment (PE): Expanded to include Service PE, covering service-based business presence.
- Information Exchange & Tax Collection: Updated provisions to meet international standards, enhancing transparency.
Benefits for Cross-Border Trade and Investment
1. Encouraging Foreign Direct Investment (FDI)
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Lower dividend taxes make India more attractive for French investors and vice versa. Companies can repatriate profits at reduced tax costs, encouraging long-term investments in manufacturing, technology, and services.
2. Boosting Employment
With increased investment flows, sectors such as IT, pharmaceuticals, aerospace, and renewable energy are expected to generate more jobs. French companies like Airbus, Capgemini, and Alstom already have significant operations in India, and the treaty changes will encourage expansion.
3. Facilitating Technology Transfer
By clarifying taxation on technical services and expanding the definition of permanent establishment, the treaty supports smoother collaboration in R&D, engineering, and digital services.
4. Strengthening Trade Relations
India–France bilateral trade crossed $13 billion in 2025, with France ranking among India’s top European partners. The treaty amendment is expected to further ease financial transactions, reduce disputes, and enhance trust between businesses.
Why This Amendment Was Needed
- The old treaty, signed in 1992, was outdated and did not reflect modern business practices.
- Ambiguities in dividend and capital gains taxation often led to disputes.
- The MFN clause created uncertainty, as India’s treaties with other countries sometimes conflicted with France’s interpretation.
- Global tax standards have evolved, requiring updates to information exchange and anti-evasion measures.
Expert Views
Tax experts believe the amendment will:
- Provide certainty to multinational corporations.
- Reduce litigation over dividend and capital gains taxation.
- Align India–France cooperation with OECD standards.
- Encourage smoother flow of capital, goods, and skilled professionals.
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Conclusion
The amendment to the India–France tax treaty is a landmark step in strengthening bilateral economic ties. By lowering dividend taxes, clarifying capital gains rules, and enhancing transparency, the protocol will boost trade, investment, and employment while reducing disputes.
As India continues to modernize its tax treaties, such reforms will play a crucial role in positioning the country as a global hub for investment and innovation.
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