India and France are on the verge of implementing a sweeping overhaul of their decades-old tax treaty, a move set to reshape the investment landscape for billions of dollars in cross-border trade and finance. The proposed changes, which are expected to be finalized soon pending final governmental approvals, will affect how dividends and capital gains are taxed for French investors in India and, conversely, how French firms structure their business operations in the subcontinent.
According to confidential Indian government documents reviewed by Reuters, the new protocol aims to modernize the Double Taxation Avoidance Agreement (DTAA) between the two countries, aligning it with global standards of tax transparency and fairness. The motivation is clear: bilateral trade between India and France reached $15 billion in 2024, and both nations are eager to foster even closer economic ties. As Indian Prime Minister Narendra Modi and French President Emmanuel Macron continue to champion stronger relations, this treaty has become a cornerstone of their collaborative agenda.
One of the most significant changes is the adjustment of dividend taxes for French companies investing in India. As reported by Reuters and The Economic Times, French companies that hold more than a 10% stake in an Indian entity will see the dividend tax rate cut in half, dropping from 10% to 5%. This is a clear incentive for long-term, substantial investors. However, the picture is less rosy for minority shareholders. Those holding less than 10% will face a dividend tax hike—from 10% (or even 5%, according to some sources) up to 15%. This shift is expected to impact more than 40 French companies with minority stakes in Indian firms, according to the Indian market intelligence platform Tracxn.
Capgemini Technology Services India, for example, declared a $500 million dividend in the 2023-24 fiscal year, illustrating the scale at which these changes could reverberate. While Capgemini and Danone declined to comment when approached by Reuters, other French companies such as Accor, Sanofi, Pernod Ricard, and L’Oreal did not respond to requests for input. The silence may reflect the uncertainty many firms feel as they await the treaty’s final form and the exact implications for their bottom lines.
But dividends are only part of the story. The new treaty proposes a dramatic shift in how capital gains are taxed. Under the current arrangement, India can only impose capital gains tax on French entities that hold more than a 10% stake in an Indian company. The revised agreement would scrap this threshold entirely, granting India full source-based taxation rights on all equity share sales by French investors. As the Indian documents put it, the treaty "will provide for full source-based taxation rights in respect of capital gains on equity shares (in India)."
This change is especially significant given the growing presence of French portfolio investors in India. As of November 2025, France-based foreign portfolio investors (FPIs) owned $21 billion worth of shares in Indian companies—a figure up by a third from 2024. According to Riaz Thingna, a partner at Grant Thornton Bharat LLP, "This will impact French FPIs in India and also French companies holding minority interest in Indian companies. These investments were not subject to tax under the current treaty." Suresh Swamy, a partner at Price Waterhouse & Co LLP, echoed these concerns, noting that "dividend withholding tax, together with capital gains taxes on equity shares, may reduce after-tax yields for investors holding less than 10% equity in a company."
Another important provision is the treatment of fees for technical services. India has agreed to limit taxes on such fees to cases where a French provider is actually transferring technical know-how. This means routine consultancy and support services—such as design consulting, cybersecurity, or market research—will largely fall outside the scope of India’s tax net. As Thingna observed, "This can help French companies that render services like design consultancy, cybersecurity and market research." The change is expected to streamline cross-border business for French service providers and reduce administrative headaches.
Perhaps the most contentious issue has been the so-called "most favoured nation" (MFN) clause. Historically, this clause allowed France to claim lower tax rates if India later offered better terms to another OECD country. However, a landmark Indian Supreme Court decision in late 2023 ruled that countries could not automatically avail themselves of such benefits, leading to a period of legal and economic uncertainty. According to an Indian official cited by Reuters, "This decision led to a sharp deterioration in the legal and economic security of French companies in India. The potential additional tax cost was estimated at 10 billion euros for existing contracts alone."
To resolve these disputes and end the cycle of "tax uncertainty and protracted litigation," as Indian documents put it, the two sides have agreed to delete the MFN clause from their treaty. Switzerland, facing similar issues, suspended its own application of the MFN clause in its treaty with India earlier this year. While some officials told The Economic Times that no final decision had been taken as of December 13, 2025, Indian government documents and statements to Reuters indicate that the clause’s deletion is all but certain.
The broader context is worth noting. India has been renegotiating its tax treaties with several countries, including Singapore and Mauritius, to end capital gains exemptions that many saw as loopholes for tax avoidance. The new India-France treaty, therefore, is part of a wider effort to assert India’s tax rights and bring its international agreements in line with domestic policy priorities.
For French investors, the treaty’s impact will depend largely on their stake size and investment horizon. Large, long-term investors may benefit from the reduced dividend tax, but minority shareholders and portfolio investors could see their after-tax returns squeezed. The removal of the MFN clause also closes off a path to lower taxes that some had relied on in the past.
As of December 12, 2025, the treaty awaits final approval by Prime Minister Narendra Modi’s cabinet. Officials familiar with the negotiations say the terms have been agreed upon, and signature is expected in the coming weeks. Once finalized, the revised treaty will mark a new era in India-France economic relations—one characterized by clearer rules, fewer ambiguities, and, if all goes well, a stronger foundation for future trade and investment.
While the fine print will matter greatly for lawyers and accountants, the broader message is clear: India and France are determined to modernize their relationship, even if that means tough negotiations and difficult compromises. Investors on both sides will be watching closely as the final details emerge, ready to adapt to a new—and hopefully more predictable—tax environment.
