India and France have agreed to update their three-decade-old tax treaty, marking a significant shift in how cross-border investments and dividend payments will be taxed. The move, announced by India’s finance ministry on Monday, is expected to ease the tax burden on major French corporations while also expanding New Delhi’s authority to tax certain capital transactions.
At the heart of the development is the reform titled India revises its tax treaty with France, lowering dividend tax rates for large investors — a change that could save major French firms millions of dollars annually.
Lower Dividend Tax for Major Shareholders
Under the revised agreement, French companies holding at least 10% equity in an Indian company will now face a reduced dividend tax rate of 5%, compared to the previous 10%. This reduction is seen as a strong incentive for long-term, strategic investors.
However, the changes are not universally beneficial. For French investors holding less than 10% in Indian firms, the dividend tax rate will increase from 10% to 15%. This shift signals India’s intent to favor substantial, committed investments over smaller portfolio holdings.
Impact on Major French Companies
The revised framework is expected to affect several prominent French multinationals that have significantly expanded their footprint in India. These include:
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Capgemini
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Accor
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Sanofi
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Pernod Ricard
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Danone
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L’Oréal
These companies, among others, stand to benefit from the lower dividend tax rate if they meet the minimum shareholding requirement.
Beyond corporate giants, the revision could also influence French portfolio investors. As of January 2026, France-based foreign portfolio investors held approximately $21 billion worth of Indian equities, according to depository data. The higher dividend tax for minority holdings may reshape some investment strategies going forward.
Expanded Capital Gains Tax Powers
In addition to adjusting dividend taxation, the revised treaty strengthens India’s authority to tax capital gains. New Delhi will now have the right to tax share sales by French entities, even if their stake in an Indian company is below 10%.
This change gives India greater control over taxation of indirect transfers and capital gains arising from investments within its jurisdiction — an area that has often led to legal disputes in the past.
Scrapping the MFN Clause
One of the most notable elements of the renegotiation is the removal of the “most-favoured-nation” (MFN) clause. The decision follows a landmark 2023 ruling by the Supreme Court of India, which clarified that countries cannot automatically claim lower tax rates granted to other OECD nations under separate agreements.
Previously, the MFN clause allowed treaty partners to demand similar benefits if India later offered more favorable tax terms to another country. However, differing interpretations led to legal uncertainty and friction between the two sides.
By eliminating the MFN provision, both governments aim to create clearer and more predictable tax rules, reducing the scope for disputes in the future.
Strengthening Bilateral Ties
The tax treaty revision comes at a time when economic and strategic ties between India and France are deepening. Bilateral trade between the two countries reached approximately $15 billion last year.
During a recent visit to India by French President Emmanuel Macron, both nations announced expanded defence cooperation, including plans to jointly manufacture Rafale fighter jets and helicopters. The tax treaty update complements this broader partnership by creating a more structured and transparent investment environment.
A Strategic Financial Reset
Overall, the revised agreement reflects a careful balancing act. While it offers relief to large, long-term French investors, it also tightens India’s grip on capital gains taxation and clarifies ambiguities surrounding treaty benefits.
By updating the pact, both countries appear to be aligning their economic relationship with modern investment realities — reinforcing investor confidence while safeguarding fiscal interests on both sides.
