New Delhi: India and France are close to sealing an agreement to revise their 1992 tax treaty, a move that will lower dividend taxes for French parent companies while ending the tax exemption on share sales by French investors.
Under the proposal – still subject to final approval from both governments – French companies holding more than a 10% stake in an Indian entity would face a 5% tax on dividends, down from the existing 10%. However, for minority shareholders, the dividend tax would increase to 15% from the current 5%.
Another proposed change to the Double Taxation Avoidance Agreement (DTAA) would allow India to levy taxes on share sales by any French entity, removing the current requirement that an investor must hold at least a 10% stake. This would shift capital gains taxation to a source-based framework.
Officials said these issues had been under discussion for some time. In recent years, India has renegotiated similar tax treaties with Singapore and Mauritius, ending their capital gains exemptions as well.
While earlier reports suggested that both countries had agreed to delete “most favoured nation” (MFN) clause, officials maintain no final decision has been taken.
The draft agreement, they said, is “yet to be finalised” and requires cabinet approval. “It has gone through multiple revisions, and it is premature to comment as there is no final word from either side, including on the MFN clause,” an official told ET, requesting anonymity.
Negotiations, which began in 2023, were delayed primarily due to disagreements over MFN clause.”The higher 15% dividend withholding tax, together with capital gains taxes on equity shares, may reduce after-tax yields for investors holding less than 10% equity in a company,” said Suresh Swamy, partner at Price Waterhouse & Co LLP.