India France DTAC Amended For Capital Gains Tax
India and France have signed an amending protocol to update their Double Taxation Avoidance Convention (DTAC), giving clearer rules on how capital gains from share sales and dividend income will be taxed, and removing an older provision that created uncertainty in cross-border taxation.
DTAC Capital Gains Taxation Based On Company Residency
Under the amended DTAC, capital gains arising from the sale of shares will now be taxed in the country where the company is resident, regardless of the shareholder’s ownership share. This replaces earlier ambiguity that exempted or limited tax in some cross-border share sales and aims to bring certainty for investors and tax authorities in both countries. Source-based capital gains taxation applies whether the seller is a French resident with shares in an Indian company or an Indian resident with shares in a French company.
Dividend Tax Changes And MFN Clause Removal
The protocol also modifies dividend taxation by replacing a uniform 10 % withholding tax with a split rate: 5 % for shareholders holding at least 10 % of a company’s capital and 15 % for other investors. This structure is designed to balance tax burdens between strategic investors and smaller holders. Additionally, the amended agreement removes the Most-Favoured-Nation (MFN) clause, which previously allowed a country to claim more favourable tax terms if granted to another treaty partner.
Other Updates To Tax Cooperation Rules
The updated treaty aligns the definition of “Fees for Technical Services” with other international agreements, expands the scope of “Permanent Establishment” to include service-based presence, and strengthens provisions on information exchange and assistance in tax collection. These changes are part of efforts to harmonise the treaty with global tax standards and encourage transparency in tax matters for cross-border business and investment.
