Revamped India-France Treaty Aims to Strengthen Financial Ties

India and France have renegotiated their 1992 treaty to halve dividend taxes for French companies operating in India, while expanding India's taxation on French share sales. The new treaty aims to boost investments and provide tax certainty, impacting major French investors like Capgemini and L'Oreal.

India and France have amended their 1992 treaty to cut down the tax on dividends paid by Indian subsidiaries to French parent companies, potentially saving millions for these businesses. This move is part of a broader strategy to enhance trade ties between the two nations, according to confidential documents obtained by Reuters.

The revised treaty will halve the dividend tax rate to 5% for French companies holding more than a 10% stake in Indian firms. For smaller stakes, the tax will increase to 15%. Both Prime Minister Narendra Modi and French President Emmanuel Macron have been working to modernize the treaty to align with global tax transparency standards.

French portfolio investors, holding $21 billion in Indian equities, will be particularly affected by the changes in capital gains tax. This development marks an end to the 'most favoured nation' clause between India and France, which had previously given French enterprises certain tax exemptions, now deemed legally challenging by a recent Indian Supreme Court decision.