India has revised its three-decade-old tax treaty with France, which will help major French companies save millions of dollars in dividend levies, while it also broadens New Delhi’s powers to tax certain transactions, the finance ministry said on Monday.
Under the new rules, French companies holding at least 10 per cent in an Indian entity will pay a 5 per cent tax on dividends, down from 10 per cent earlier. For minority French shareholdings of under 10 per cent in Indian companies, however, dividend tax will rise from 10 per cent to 15 per cent.
The new tax treaty would likely 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. The revised pact also gives India the right to tax capital gains and impose taxes on any French entity’s share sale, even when it holds less than 10 per cent of an Indian firm.
The move could impact France-based foreign portfolio investors that owned $21 billion worth of shares in Indian companies as of January 2026. It also scraps the most-favoured-nation (MFN) clause following a landmark Supreme Court decision in late 2023 that led to disagreements on how to interpret the clause.
Manoj Purohit, partner - financial services tax, tax & regulatory advisory at BDO India, said: “… the tax regulator seems to plug the benefit taken by the entities in the India-France tax treaty… The treaty lost its shine after the apex court’s ruling in Nestle’s case on availing the benefit under the MFN clause. The recent Tiger Global ruling has further tightened the possibility of availing tax exemption for global funds investing in India.”