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India, France seal treaty revamp giving Paris dividend relief, Delhi tax rights
Published by Global Banking and Finance Review
Posted on December 12, 2025
Global Banking and Finance Review
Company
Published by Global Banking and Finance Review
Posted on December 12, 2025
By Aditya Kalra, Nikunj Ohri and Shivam Patel
NEW DELHI, Dec 12 (Reuters) - India and France have struck a deal to revise their 1992 treaty which will halve the tax on dividends paid by Indian units to French parents, potentially saving millions for companies with major operations in the South Asian nation, documents show.
In return, India will get to widen its powers to tax share sales by French investors, and revoke the "most favoured nation" status of France that gave it certain tax advantages, according to confidential Indian government documents reviewed by Reuters.
Bilateral trade between India and France stood at $15 billion last year, and Indian Prime Minister Narendra Modi and French President Emmanuel Macron have been forging warmer ties. The two sides have been working to recast their tax treaty since 2024 to modernize it by adapting global standards on tax transparency.
"The proposed amending protocol will boost flow of investment, technology and personnel between India and France, and will provide tax certainty," said one of the Indian government documents from August.
The new treaty could have implications for large French portfolio investors as well as companies like Capgemini, Accor, Sanofi, Pernod Ricard, Danone and L'Oreal -- all of which have expanded their presence in India in recent years.
A key change is that French companies which hold a stake of more than 10% in any Indian entity will have to pay a 5% tax on the dividends they receive, instead of 10% earlier.
For minority French shareholdings of under 10% in Indian companies, however, dividend tax will rise from 10% to 15%.
Many French firms' Indian units like Capgemini Technology Services India, BNP Paribas Securities India and TotalEnergies Marketing India have declared dividends in the past, their Indian regulatory disclosures show. The Capgemini unit's dividend stood at $500 million in 2023-24.
France's tax office said it could not comment for this story given the negotiations are ongoing, while the finance ministry did not respond to Reuters' queries.
India's foreign and finance ministries also did not respond.
Capgemini and Danone declined to comment while the other French companies did not respond to Reuters' queries.
CHANGES TO CAPITAL GAINS, SERVICES TAX
Currently, India can impose taxes on any French entity's share sale, but only when it holds more than 10% of an Indian company. The new proposed treaty will remove that threshold.
The new treaty "will provide for full source-based taxation rights in respect of capital gains on equity shares (in India)," said the Indian documents.
France-based foreign portfolio investors (FPIs) own $21 billion worth of shares in Indian companies as of November 2025, a third higher than levels in 2024, Indian share depository data shows.
And more than 40 French companies hold stakes of under 10% in Indian entities, according to an analysis by Indian market intelligence platform Tracxn.
"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," said Riaz Thingna, a partner at Grant Thornton Bharat LLP.
One official familiar with the deliberations told Reuters on condition of anonymity that Indian and French officials have agreed the terms of the new treaty, which will likely be signed in the coming weeks.
In New Delhi, the deal is subject to final approval by Prime Minister Narendra Modi's cabinet, according to the documents.
Reuters is the first to report the planned changes to India-France treaty.
India has also agreed to France's demand to limit tax on fees for technical services to cases where a French provider transfers technical know-how, removing most routine consultancy and support services from the scope of India's tax.
"This can help French companies that render services like design consultancy, cybersecurity and market research," Thingna said.
NO MORE 'MOST FAVOURED NATION'
Differences over how to interpret the so-called most-favoured nation, or MFN, clause were among the main reasons for the renegotiation, the official said.
If a country has an MFN clause with India under a signed treaty, it typically starts claiming lower tax rates if New Delhi strikes more favourable tax terms later with another OECD nation.
But a landmark Indian Supreme Court decision in late 2023 said countries can't automatically start doing so, triggering concerns in France.
"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," said the official.
India and France have reached a decision to delete the MFN clause from their treaty which had historically benefitted only France, according to Indian government documents.
That was to put an end to disagreements related to its interpretation that have led to "tax uncertainty and protracted litigation," said one document.
Switzerland in January also suspended its application of the MFN clause in its India treaty citing the Supreme Court ruling.
(Reporting by Aditya Kalra, Nikunj Ohri and Shivam Patel in New Delhi; Additional reporting by Dominique Patton and Leigh Thomas in France; Editing by Toby Chopra)
Dividend tax is a tax imposed on the income earned from dividends paid by corporations to their shareholders. The rate can vary based on the shareholder's residency and the tax treaty in place.
Capital gains are the profits earned from the sale of an asset, such as stocks or real estate, when the selling price exceeds the purchase price. They are typically subject to taxation.
Foreign investment refers to the investment made by individuals or entities in one country into assets or businesses located in another country, often to gain financial returns.
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