India has strategically reduced dividend taxes for major French investors in a revised bilateral treaty, a move that signals a broader global trend of nations fiercely competing to attract multinational capital. The revised three-decade-old treaty expands New Delhi's taxing powers while sweetening the deal for European capital.
Under the revised agreement, French companies holding at least 10% equity in an Indian company will now face a reduced dividend tax rate of 5%, compared to the previous 10%. This reduction is seen as a strong incentive for long-term, strategic investors.
However, the changes are not universally beneficial. For French investors holding less than 10% in Indian firms, the dividend tax rate will increase from 10% to 15%. This shift signals India’s intent to favor substantial, committed investments over smaller portfolio holdings.
The revised framework is expected to affect several prominent French multinationals that have significantly expanded their footprint in India. These include:
Capgemini
Accor
Sanofi
Pernod Ricard
Danone
L’Oréal
These companies, among others, stand to benefit from the lower dividend tax rate if they meet the minimum shareholding requirement.
Beyond corporate giants, the revision could also influence French portfolio investors. As of January 2026, France-based foreign portfolio investors held approximately $21 billion worth of Indian equities, according to depository data. The higher dividend tax for minority holdings may reshape some investment strategies going forward.
In addition to adjusting dividend taxation, the revised treaty strengthens India’s authority to tax capital gains. New Delhi will now have the right to tax share sales by French entities, even if their stake in an Indian company is below 10%.
This change gives India greater control over taxation of indirect transfers and capital gains arising from investments within its jurisdiction — an area that has often led to legal disputes in the past.
One of the most notable elements of the renegotiation is the removal of the “most-favoured-nation” (MFN) clause. The decision follows a landmark 2023 ruling by the Supreme Court of India, which clarified that countries cannot automatically claim lower tax rates granted to other OECD nations under separate agreements.
Previously, the MFN clause allowed treaty partners to demand similar benefits if India later offered more favorable tax terms to another country. However, differing interpretations led to legal uncertainty and friction between the two sides. By eliminating the MFN provision, both governments aim to create clearer and more predictable tax rules, reducing the scope for disputes in the future.
The updated Double Taxation Avoidance Agreement (DTAA) represents a calculated compromise. While France secures a reduced tax burden on repatriated dividends for its multinational entities operating in the subcontinent, India gains enhanced jurisdictional authority to tax specific capital gains derived from the sale of shares.
This equilibrium ensures that the host nation captures value from corporate exits while maintaining an attractive environment for long-term operational investments. It is a precise fiscal balancing act designed to foster industrial growth without sacrificing sovereign tax revenues, a challenge commonly faced by developing economies globally.
This aggressive tax diplomacy highlights the intricate dance of international economics. By lowering barriers for corporate giants like Sanofi, Renault, and L'Oreal, India is actively redirecting global supply chains.
The tax treaty revision comes at a time when economic and strategic ties between India and France are deepening. Bilateral trade between the two countries reached approximately $15 billion last year.
During a recent visit to India by French President Emmanuel Macron, both nations announced expanded defence cooperation, including plans to jointly manufacture Rafale fighter jets and helicopters. The tax treaty update complements this broader partnership by creating a more structured and transparent investment environment.
