India–France Tax Treaty Revamp: Dividend Relief & Expanded Capital-Gains Tax Rights

India and France have concluded a landmark overhaul of their bilateral tax treaty, modernising the earlier 1992 agreement to better align with evolving global tax norms. The revised pact introduces significant changes in the treatment of dividends and capital gains—key areas that shape international investment flows and cross-border business structures.

Reduced Dividend Tax Rates for Major Investments

One of the most notable reforms in the updated treaty is the lowered tax rate on dividends, particularly benefiting large institutional investors. By reducing the withholding tax on dividend payouts for substantial cross-border investments, the new pact aims to encourage long-term capital inflows between the two countries.

This move is expected to support greater French participation in Indian sectors such as renewable energy, infrastructure, defence manufacturing, aviation, and high-technology—areas that have seen strong bilateral collaboration in recent years. For Indian companies with French operations or shareholders, the reduced rates also provide a more predictable and favourable tax environment.

India Gains Expanded Rights to Tax Capital Gains

A second critical feature of the revised treaty is the expansion of India’s right to tax capital gains arising from foreign share transfers. This provision strengthens India’s tax sovereignty, ensuring that gains from the sale of shares—particularly those involving underlying Indian assets—can be appropriately taxed domestically.

The shift is in line with India’s broader approach to preventing tax avoidance and ensuring fair taxation of digital and multinational entities.

Broader Implications for Investors and Policy

The revamp enhances overall tax certainty, reduces litigation risks, and signals India’s commitment to transparent, modern tax governance. As India and France continue to deepen their economic partnership, the treaty update is expected to facilitate smoother investment flows while safeguarding India’s revenue interests.