India and France have agreed to change their old tax treaty to make it more suitable for current investment rules and global tax standards. The revised agreement lowers the tax on dividends for major French investors while allowing India to tax more types of capital gains.
Under the new terms, French companies that hold a large stake in Indian firms will pay a reduced tax on the dividends they receive. This step is expected to encourage long-term investments from France and provide more clarity to companies operating between the two countries.
At the same time, India has gained broader powers to tax profits made from the sale of shares in Indian companies by French investors. Earlier, India could tax such gains only when the French entity had a substantial holding. With the new changes, that restriction has been removed, giving India more taxation rights on transactions involving Indian assets.
One of the most important updates in the treaty is the removal of the Most Favoured Nation (MFN) clause. This clause had allowed France to automatically claim the same tax benefits that India gave to some other countries. Its removal follows recent legal and policy developments and brings the agreement in line with India’s current tax approach.
The revised pact also aims to improve transparency and prevent tax avoidance, while ensuring that income is taxed in a fair and predictable way. Officials say the move will help create a better investment environment and strengthen economic cooperation.
France is one of India’s key partners in Europe, with major companies present in sectors such as defence, energy, infrastructure, technology and manufacturing. The updated tax rules are likely to influence future investment decisions and support the flow of capital between the two countries.
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