India–France Tax Treaty 2025: What 5% Dividend Tax Means for Investors, 9 Points

Paris / Delhi

India–France Tax Treaty Overhaul: Dividend Tax Cut to 5%, Capital Gains Powers Expanded | $21B Investment Impact Explained

1. Strategic Treaty Revision After 33 Years

1. Historic Update

   • India and France to revise the 1992 Double Taxation Avoidance Agreement (DTAA).

   • Objective: boost investment certainty while strengthening India’s tax base.

2. Policy Context

   • Amendment aligned with global source-based taxation norms.

   • Based on confidential government documents reviewed by Reuters.

2. Dividend Tax Reset: Winners & Losers

1. Major Relief for Large French Investors

   • Dividend tax cut to 5% from 10%.

   • Applies to French parent companies holding more than 10% stake in Indian subsidiaries.

2. Higher Tax for Minority Investors

   • Dividend tax raised to 15% from 10%.

   • Applies to holdings below 10%.

Dividend Tax Comparison Table

3. Capital Gains: India Gains Broader Taxing Rights

1. Removal of Ownership Threshold

   • Existing 10% stake threshold eliminated.

   • India can now tax all share sales by French investors.

2. Who Gets Impacted

   • French portfolio investors.

   • Companies holding minority stakes in Indian firms.

3. Revenue Implication

   • Expands India’s capital gains tax base, potentially increasing annual tax collections.

4. MFN Clause Revoked: Litigation Risk Reduced

1. End of Automatic Tax Benefits

   • India to revoke the Most Favoured Nation (MFN) clause for France.

2. Why It Matters

   • Prevents France from claiming lower taxes offered to other OECD nations.

   • Aligns with 2023 Supreme Court ruling.

3. Financial Outcome

   • Reduces retroactive tax disputes and arbitration costs.

5. Technical Services Tax: Narrowed Scope

1. Clear Definition Introduced

   • Tax applies only if technical know-how is transferred.

2. What’s Exempt

   • Routine consultancy.

   • Support services.

3. Beneficiary Sectors

   • Design consultancy.

   • Cybersecurity services.

   • Market research firms.

4. Cost Advantage

   • Lowers withholding tax exposure for French service providers.

6. India–France Trade & Investment Snapshot

1. Bilateral Trade Strength

   • Total trade: USD 15 billion (FY 2024).

2. French Equity Exposure in India

   • French portfolio investments: USD 21 billion.

   • 33% increase vs 2024.

3. Key French Corporates in India

   • Capgemini

   • Sanofi

   • Pernod Ricard

   • Danone

   • Accor

   • L’Oréal

Investment Overview Table

7. Expected Economic & Market Impact

1. For India

   • Stronger capital gains tax revenues.

   • Enhanced tax sovereignty.

2. For French Corporates

   • Lower dividend tax improves net ROI.

   • Greater clarity on service taxation.

3. For Markets

   • Improved tax certainty.

   • Encourages long-term FDI inflows.

8. Timeline & Approval Status

1. Negotiations

   • Broad framework already agreed by both sides.

2. Next Steps

   • Pending final approval from PM Narendra Modi’s cabinet.

3. Signing Outlook

   • Treaty expected to be signed in coming weeks.

9. Why This Treaty Matters Financially

1. 5% dividend tax boosts post-tax returns for large investors.

2. Expanded capital gains powers strengthen India’s fiscal position.

3. USD 21B French exposure means even small rate changes have multi-billion-dollar implications.

4. Positions India as a transparent, globally aligned investment destination.

Disclaimer

This article is published by The Profit India for informational and educational purposes only. It does not constitute tax, legal, or investment advice. Readers are advised to consult qualified professionals before making financial or investment decisions. The information is based on publicly available reports and sources believed to be reliable; however, The Profit India does not guarantee accuracy or completeness.