India reduces dividend tax for major French investors

India and France have updated their three-decade-old tax treaty, cutting dividend taxes for large French investors while expanding New Delhi’s authority to tax certain transactions. The revised agreement lowers the dividend tax rate to 5% for French companies that hold at least a 10% stake in an Indian firm. Earlier, these investors paid 10%. Officials expect the move to encourage long-term strategic investments from major French corporations. The changes reflect closer economic coordination between the two governments.

At the same time, India has increased the dividend tax rate for French investors holding less than a 10% stake in Indian companies. These minority investors will now pay 15%, compared with the earlier 10% rate. The government has drawn a clear distinction between substantial investors and smaller portfolio holders. By doing so, it aims to reward deeper capital commitments while protecting its revenue base. The new structure reshapes how dividend income is taxed under the bilateral framework.

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India cuts dividend tax, tightens capital gains norms

The amended treaty also grants India the right to tax capital gains arising from the sale of shares, even when a French entity owns less than 10% of an Indian company. This provision strengthens India’s ability to tax indirect transfers and other qualifying transactions. In addition, both countries have removed the most-favoured-nation (MFN) clause from the agreement. The clause had previously allowed French entities to seek lower tax rates if India offered better terms to other OECD members. India’s Supreme Court had ruled in 2023 that such benefits cannot apply automatically without formal notification.

India’s finance ministry released the details of the revised treaty shortly after French President Emmanuel Macron visited the country. During the visit, both sides elevated their ties to a “Special Global Strategic Partnership” and expanded cooperation in defence, space, and other strategic sectors. In a joint statement issued on 17 February, the two nations welcomed the treaty amendment. They said the revision would secure economic activity and create opportunities for greater investment and collaboration.

The updated agreement will take effect after both countries complete the required legal and administrative procedures. French portfolio investors currently hold billions of dollars’ worth of shares in Indian companies, highlighting France’s strong presence in the Indian market. Bilateral trade between the two countries has also reached significant levels in recent years. Consulting firm KPMG stated that the revised treaty aligns with India’s current tax policy and global standards. It added that the changes demonstrate India’s commitment to safeguarding its tax base while maintaining a stable investment climate.

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