December 17, 2025
Key Tax Impact of Possible Revisions to the India-France Tax Treaty From a Foreign Portfolio Investor Perspective
Investor Perspective
- As per recent press articles[1], the Indian and French governments are in the closing stages of finalizing the revised Double Taxation Avoidance Agreement (DTAA or Tax Treaty).
- An official government press release is not yet issued, as the agreement appears to be still awaiting final approval from the Indian cabinet and certain internal approvals at the French level. This approval, as per the press reports, is expected in the coming weeks. Based on various press reports, Indian and French officials appear to have agreed on the following key revisions to the India-France Tax Treaty:
- Dividends: A lower tax rate of 5% applies where the shareholding exceeds 10%, and a higher rate of 15% applies in other cases, compared with the current 10% rate.
- Capital gains: Removal of the exemption currently available to minority shareholders (i.e., shareholding less than 10%) on the transfer of shares of an Indian company.
- Fees for technical services (FTS): Inclusion of the “Make Available” clause in the FTS article, thereby exempting routine management and support services from taxation, consistent with several other tax treaties.
- A comparative summary of key clauses under the proposed India-France Tax Treaty (as per the press reports), alongside existing provisions, domestic tax law and, the India-Singapore Tax Treaty, is provided below:
| Character of Income | Tax Rates Under the Tax Treaty | Tax Rates Under the Domestic Tax Law* | Tax Rates Under India-Singapore Tax Treaty | |
| Current | Revised | |||
| 1) Dividend | 10% (no-minimum shareholding) | 5% (shareholding >10%); and 15% (in other cases) | 20% | 10% (shareholding >25%); 15% (in other cases) |
| 2) Interest | 10% | 10% | 20% | 10% (interest paid by banks and insurance companies); 15% (in other cases) |
| 3) Capital Gains on Sale of Shares | Resident based taxation for minority shareholders (<10% shareholding) i.e., transfer of Indian company shares exempt in India for French Residents if holding less than 10%, otherwise taxable in India also. | Source based taxation even for minority shareholders i.e., all transfers of Indian company shares now taxable in India for French residents. | Taxable at 12.5% (long term) / 20 or 30% (short term), based on the period of holding and type of shares. | Source based taxation for shares acquired after 1 April 2017 i.e. transfer of Indian company shares taxable in India for Singapore residents. |
| 4) Capital Gains on Futures and Options | Taxable only in France. | No indication, but should be taxable only in France. | 30% | Taxable only in Singapore. |
* Tax rates to be increased by applicable surcharge and cess, depending on the quantum of income and status of the taxpayer.
- The protocol to the India-France Tax Treaty also provides for a Most Favoured Nation (MFN) clause, under which the above rates could be reduced, or their scope narrowed, by applying Articles from tax treaties with other Organisation for Economic Co-operation and Development (OECD) member countries (such as Slovenia and Portugal). The revised Tax Treaty is expected to eliminate the MFN clause, aligning with the recently revised India-Swiss Tax Treaty and the Indian government’s position of non-extension of the MFN clause.
- France was the largest Foreign Portfolio Investor (FPI) inflow contributor in October 2025, investing US $2.58 billion in equities and approximately $152 million in debt[2]. According to National Securities Depository Limited (NSDL) reports[3], aggregate FPI investments from France as of November 2025 stood at INR 2,059 billion (about. US $22.69 billion), ranking it 10th among the top 10 FPI countries for India.
- Since SEBI limits FPI investment in an Indian company to 10%, French FPIs typically do not incur capital gains tax in India.
- The above change could have a far-reaching impact on FPI investment from France into India.
Disclaimer: The information and data contained in this document are of a general nature and have been obtained from publicly available sources and market insights. This analysis does not constitute professional advice and is intended solely for informational purposes.
Sources
[1] https://www.reuters.com/world/india/india-france-seal-treaty-revamp-giving-paris-dividend-relief-delhi-tax-rights-2025-12-12/; and, https://economictimes.indiatimes.com/news/economy/foreign-trade/india-france-near-deal-on-tax-treaty-to-lower-levy-on-dividends-paid-to-french-parent-companies/articleshow/125939434.cms?from=mdr
[2] https://investmentguruindia.com/newsdetail/france-us-germany-lead-october-fpi-inflows-in-indian-stock-market990441
[3] https://www.fpi.nsdl.co.in/web/Reports/ReportDetail.aspx?RepID=14
