India has revised its three-decade-old tax treaty with France, lowering dividend tax for large French shareholders while expanding New Delhi’s powers to tax capital gains and share sales, the Finance Ministry said on Monday.
Under the updated agreement, French companies holding at least 10% stake in an Indian entity will now pay 5% tax on dividends, down from the earlier 10%. However, French investors with less than 10% shareholding will see dividend tax rise from 10% to 15%.
The change is expected to benefit large French multinationals with significant exposure to India, including Capgemini, Accor, Sanofi, Pernod Ricard, Danone and L’Oréal, all of which have expanded their India operations in recent years. For such firms, the lower dividend withholding tax could translate into substantial annual savings.
At the same time, the revised pact strengthens India’s right to tax capital gains arising from share sales. India will now be able to tax gains from the sale of shares of an Indian company even if the French entity holds less than 10%. This could affect France-based foreign portfolio investors (FPIs), who held around $21 billion worth of Indian equities as of January 2026, according to depository data.
The agreement also removes the Most-Favoured-Nation (MFN) clause, following a landmark 2023 ruling by the Supreme Court of India. The court had held that treaty benefits under MFN provisions cannot be automatically claimed without specific government notification, leading to disputes and uncertainty over tax rates. The deletion of the clause is aimed at bringing clarity and reducing litigation.
The treaty revision comes amid strengthening strategic ties between the two countries. During the recent visit of French President Emmanuel Macron to India, both sides announced expanded defence cooperation, including plans to jointly produce Dassault Rafale fighter jets and helicopters. Bilateral trade between India and France stood at about $15 billion last year.
With the revised treaty, India has sought to balance investment promotion with tighter tax safeguards. While large strategic investors gain from lower dividend tax, portfolio investors may need to reassess their tax positions under the new framework.
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