India and France Amend Cross-Border Tax Treaty
India and France have amended their bilateral tax treaty, which will impact international investment flows. Under the new terms, India gains full rights to tax capital gains on shares of Indian companies. The dividend tax for French investors holding over 10% will drop to 5%, while it will increase to 15% for those with smaller stakes.
- The amendment removes a long-standing exemption for French investors on capital gains from selling shares in Indian companies, a benefit previously available if their stake was under 10%. This change impacts France-based foreign portfolio investors, who held approximately $21 billion in Indian equities as of January 2026. - A key driver for this amendment was the removal of the Most Favoured Nation (MFN) clause, which followed a 2023 Indian Supreme Court ruling. The court decided that MFN benefits from other treaties couldn't be automatically applied, creating tax uncertainty and prompting the renegotiation to remove the clause entirely. - This treaty update is part of a broader Indian strategy to prevent revenue loss by amending tax agreements with countries that had become popular for routing investments, following similar changes to treaties with Mauritius and Singapore in 2017. - The revised dividend tax structure is designed to incentivize long-term, strategic investment over passive portfolio flows. This aligns with India's policy of rewarding sustained, material ownership, which benefits major French companies with significant Indian operations like Capgemini, Sanofi, and L'Oreal. - The protocol was signed by Central Board of Direct Taxes (CBDT) Chairperson Ravi Agrawal and French Ambassador to India Thierry Mathou, following the visit of French President Emmanuel Macron. - This move to assert source-based taxation rights comes as Bangalore, a key market for HR tech, continues to be a top destination for foreign direct investment in India. The city attracted over $11.5 billion in FDI between April and September 2025, the highest growth among top states, underscoring its importance as a global tech and startup hub.
