India and France revise tax treaty on dividends after Modi-Macron meeting

French President Emmanuel Macron (left) held a bilateral visit with Indian Prime Minister Narendra Modi in Delhi last week

India and France have revised a three-decade-old tax treaty, reducing dividend levies for large French investors while expanding Delhis powers to tax some transactions.

The changes could benefit major companies such as Sanofi, Renault and LOreal, which have expanded their investments in India over the past few years.

The agreement also gives Delhi the right to tax capital gains arising from the sale of shares, including transactions where a French entity owns less than 10% of an Indian company.

The revised treaty also removes a most-favoured-nation (MFN) clause which had allowed French entities to claim a lower tax rate in India.

It will come into effect after completing formalities and legal approvals in both countries.

The details of the amended treaty were released by Indias finance ministry on Monday, days after French President Emmanuel Macron visited India.

During the visit, the countries announced the elevation of their relationship to a Special Global Strategic Partnership and deepened cooperation in areas such as defence and space technology.

In a joint statement on 17 February, they welcomed the amendment to the bilateral tax treaty. They said it would secure economic activity for French and Indian businesses and pave the way for greater investments and collaborations between the two countries.

As of January 2026, France-based foreign portfolio investors held shares worth $21bn (£15.6bn) in Indian companies, according to data cited by Reuters news agency.

Bilateral trade between India and France stood at $15bn last year.

Under the new rules, French companies holding at least a 10% stake in an Indian company will have to pay 5% tax on dividends - down from 10% earlier.

However, the tax on dividends for French investors holding less than 10% in an Indian company would rise from 10% to 15%.

The removal of the MFN clause is in line with a 2023 judgement by Indias Supreme Court.

In this case, the clause allowed countries that are members of the Organisation for Economic Co-operation and Development (OECD) to claim the benefit of lower tax rates if India later granted more favourable terms under a separate treaty to another member of the multinational forum. While France is a member of OECD, India is a key partner.

However, the top court ruled that such benefits cannot be applied automatically in such treaties and required a notification to be issued.

The revised treaty realigns the bilateral trade framework with Indias current treaty policy and international tax standards, global consultancy and financial services firm KPMG said in a statement.

It also underscores Indias efforts to safeguard its tax base and promote a stable investment environment, it added.