Capital Gains Tax Between India and France Under DTAA

Quick answer: Under the current India-France DTAA (signed 29 September 1992, effective 1 August 1994), Article 14(5) lets India tax capital gains on Indian company shares only where the French investor holds at least 10% of the company's capital — below that threshold, gains are taxed only in France. A 2026 Amending Protocol signed 23 February 2026 would remove this 10% threshold entirely, but it is still pending ratification by both parliaments and not yet in force, so the 10% rule remains the operative law today. Where India does tax, its domestic rates apply in full: 12.5% LTCG on listed shares above INR 1.25 lakh and 20% STCG.

Key takeaways:

• Currently, India can tax French investors' share gains only above a 10% shareholding.
• Below 10% holding, gains are taxed only in France under current rules.
• The 2026 Amending Protocol would remove the 10% threshold but is not yet ratified.
• Immovable property in India is always taxable in India under Article 14(1).
• Where taxable, listed share LTCG is 12.5% above INR 1.25 lakh; STCG is 20%.

Capital Gains Tax Rate Between India and France

The India-France Double Taxation Avoidance Convention (DTAA), originally signed on 29 September 1992 and effective from 1 August 1994, addresses capital gains taxation under Article 14 (Capital Gains). The treaty is set to be significantly amended by the Amending Protocol signed on 23 February 2026, which will fundamentally change the capital gains landscape for cross-border investors between India and France once it enters into force. Important: the 2026 Amending Protocol is currently pending ratification by the parliaments of both India and France and is not yet in force. Until ratification is completed, the original 1992 treaty provisions (including the 10% threshold and the MFN clause) continue to apply.

Under the current treaty, Article 14 restricts India's right to tax capital gains on shares sold by French residents — India can only tax gains where the French investor holds at least 10% participation in the Indian company. Once ratified, the 2026 Amending Protocol will remove this threshold entirely, granting India full taxing rights on capital gains from the sale of shares of Indian companies, regardless of the size of the French investor's shareholding. This marks a major shift in policy and aligns with India's broader push to assert source-country taxation on equity disposals.

For personalised guidance on structuring investments to optimise capital gains tax exposure under the revised treaty, consult Beacon Filing's tax advisory team.

Treaty Rate vs Domestic Rate: Detailed Comparison

Article 14 of the India-France DTAA establishes differentiated rules for capital gains based on asset type. The 2026 Amending Protocol introduces critical changes:

Original Article 14 — Pre-Amendment Rules

Under the original treaty, Article 14 provided the following framework:

• Immovable property (Article 14(1)): Gains from the alienation of immovable property situated in India may be taxed in India. This includes agricultural and forestry property.
• Business property (Article 14(2)): Gains from movable property forming part of a permanent establishment in India are taxable in India.
• Shares in immovable property companies (Article 14(4)): Gains from shares whose value derives principally from immovable property situated in India may be taxed in India.
• Substantial shareholding (Article 14(5)): Gains from shares representing at least 10% participation in an Indian company may be taxed in India.
• Other property (Article 14(6)): Gains from all other property are taxable only in the alienator's state of residence (France).

2026 Amending Protocol — New Capital Gains Rules

The Amending Protocol signed on 23 February 2026 will fundamentally change Article 14(5) by removing the 10% threshold once it is ratified and enters into force. After ratification, India will have the right to tax capital gains on the sale of shares of Indian companies irrespective of the percentage of shareholding held by the French investor. This means (once the Protocol takes effect):

Note: The rates above reflect the post-Budget 2024 amendments. French investors now face Indian domestic rates on all share disposals, without the protection of the former 10% threshold.

Who Qualifies for Relief on Capital Gains

Since the revised treaty grants India broad taxing rights on capital gains from Indian shares, the mechanism for avoiding double taxation shifts to the foreign tax credit:

French Residents: Credit Method in France

A French tax resident who pays capital gains tax in India on the sale of Indian assets can claim a credit against their French tax liability for the Indian tax paid. France applies the credit method under Article 25 of the treaty — the French investor reports the Indian income and offsets the Indian tax against the French tax due on the same income. The credit is limited to the French tax attributable to the Indian-source income.

Indian Residents: Relief Under Section 90

Indian residents who sell French assets and pay French capital gains tax can claim relief under Section 90 of the Income Tax Act. The credit method under Section 90, read with Rule 128, allows the Indian taxpayer to deduct foreign taxes paid from their Indian tax liability on the same income.

MFN Clause to Be Removed (Pending Ratification)

The 2026 Amending Protocol will remove the Most-Favoured-Nation (MFN) clause from the treaty once it is ratified. Under Protocol Clause 7, if India enters into a DTAA with another OECD member state offering lower rates on dividends, interest, royalties, or FTS, France could claim the same lower rates. This clause remains part of the treaty text until the 2026 Protocol enters into force; following the Supreme Court's 2023 Nestle SA ruling, its operation already requires a separate Section 90 notification. Once the Protocol is ratified, the MFN clause will no longer apply and the rates specified in the revised treaty will be final.

Capital Gains-Specific Treaty Provisions

Immovable Property Gains (Article 14(1))

Gains derived by a French resident from the alienation of immovable property situated in India — including agricultural and forestry property as defined in Article 6 — may be taxed in India. India applies its full domestic capital gains rates to such transactions. The definition of immovable property follows the law of the state where the property is situated, giving India full discretion to define what constitutes immovable property under the Income Tax Act.

Business Property Connected to a PE (Article 14(2))

Gains from the alienation of movable property forming part of the business property of a permanent establishment which a French enterprise maintains in India, including gains from the alienation of the PE itself, may be taxed in India. These gains are typically treated as business profits under Article 7.

Ships and Aircraft (Article 14(3))

Gains from the alienation of ships or aircraft operated in international traffic, or movable property pertaining to their operation, are taxable only in the state where the enterprise's place of effective management is situated.

Shares in Immovable Property Companies (Article 14(4))

Gains from the alienation of shares of a company whose property consists principally of immovable property situated in India may be taxed in India. This provision captures indirect transfers where the value of the shares derives from underlying Indian real estate.

All Shares of Indian Companies (Revised Article 14(5) — Pending Ratification)

Once the 2026 Amending Protocol is ratified, gains from the alienation of shares of any Indian-resident company may be taxed in India, with no minimum shareholding threshold. This is the most significant change introduced by the 2026 Amending Protocol, removing the prior requirement that the French investor hold at least 10% of the company's capital. Until the Protocol enters into force, the existing 10% threshold continues to apply.

Documentation Required

To ensure proper tax compliance for capital gains transactions between India and France:

Tax Residency Certificate (TRC)

A Tax Residency Certificate issued by the French tax authorities is essential to establish the investor's treaty eligibility. While the TRC does not reduce capital gains rates (as India now has full taxing rights), it is necessary for claiming the foreign tax credit in France and for compliance with Indian withholding requirements.

Form 10F

The French resident must furnish Form 10F on India's Income Tax e-filing portal, providing details such as status, nationality, Tax Identification Number (TIN), and period of residential status in France.

Form 15CA and Form 15CB

When sale proceeds are remitted from India to France, Form 15CA (declaration of remittance) and Form 15CB (CA certificate confirming tax deduction at the appropriate rate) must be filed. Form 15CB is required where the remittance exceeds INR 5 lakh.

French Tax Return

French residents must report Indian capital gains on their French income tax return and claim the credit for Indian tax paid. France uses Form 2047 (Revenus de Source Étrangère) for declaring foreign-source income and computing the foreign tax credit.

Withholding Procedure for Indian Payers

Indian entities making payments to French residents on account of capital gains must comply with TDS obligations under Section 195:

TDS on Share Transactions

Under current law, India can tax share gains where the French investor holds at least 10% of the Indian company; once the 2026 Amending Protocol is ratified, all capital gains from the sale of Indian shares by French residents will be subject to Indian tax regardless of holding size. Where taxable, TDS applies as follows:

• LTCG on listed shares: 12.5% (Section 112A)
• LTCG on unlisted shares: 12.5% (Section 112)
• STCG on listed shares: 20% (Section 111A)
• STCG on unlisted shares: Applicable slab rate

TDS on Property Transactions

For immovable property sold by French non-residents, the buyer must deduct TDS at 12.5% for LTCG or the applicable rate for STCG under Section 195.

Lower Deduction Certificate (Section 197)

If the actual tax liability is lower than the TDS rate (for example, due to cost of acquisition adjustments), the French seller can apply for a lower deduction certificate under Section 197 before the transaction.

Common Disputes and Judicial Precedents

MFN Clause Litigation

The India-France DTAA's MFN clause (Protocol Clause 7) has been the subject of extensive litigation. The Supreme Court of India, in its landmark 2023 ruling in the case of Nestle SA and Others, held that the MFN clause does not automatically apply — it requires a separate notification under Section 90 of the Income Tax Act. Once ratified, the 2026 Amending Protocol will resolve this issue by removing the MFN clause entirely.

Indirect Transfers

India's domestic law under Section 9(1)(i) Explanation 5 asserts taxing rights over shares deriving value substantially from Indian assets. For French investors holding shares in intermediary companies (whether French, Mauritian, or others) whose value derives from Indian assets, this provision can trigger Indian capital gains tax even if the transaction occurs entirely outside India.

GAAR Implications

India's General Anti-Avoidance Rule (GAAR), effective from 1 April 2017, can override treaty benefits where arrangements are found to have been entered into primarily for obtaining a tax benefit. French investors who have historically structured their Indian investments through intermediate jurisdictions to benefit from the 10% threshold may face increased scrutiny post-amendment.

Service PE Under Revised Treaty (Pending Ratification)

The 2026 Amending Protocol introduces a Service PE concept, expanding the definition of permanent establishment to include services performed by French enterprises in India beyond specified thresholds. Once the Protocol enters into force, this can impact how business profits — and related capital gains on business assets — are attributed to India.

Practical Examples and Calculations

Example 1: French Investor Selling Listed Indian Shares (LTCG)

A French resident purchased 5,000 shares of an Indian listed company at INR 200 per share (INR 10,00,000 total) on 1 February 2023. They sell the shares on 1 June 2026 at INR 500 per share (INR 25,00,000 total).

• Capital gain: INR 25,00,000 - INR 10,00,000 = INR 15,00,000
• Exempt amount: INR 1,25,000 (threshold under Section 112A)
• Taxable LTCG: INR 13,75,000
• Tax in India: 12.5% of INR 13,75,000 = INR 1,71,875
• France treatment: Gain also reportable in France; credit of INR 1,71,875 (converted to EUR) claimed against French tax on the same income

Example 2: French Investor Selling Unlisted Shares — Impact of 2026 Amendment

A French private equity fund held a 3% stake in an Indian private company, acquired for INR 2,00,00,000. The stake is sold 30 months later for INR 5,00,00,000.

• Current law (pre-ratification): Under Article 14(5) as it stands today, India can not tax this gain because the holding is below 10%. The gain is taxable only in France.
• After the 2026 Protocol is ratified: India will have full taxing rights regardless of the 3% holding
• Capital gain: INR 3,00,00,000
• Classification: Long-term (held more than 24 months for unlisted shares)
• Tax in India: 12.5% of INR 3,00,00,000 = INR 37,50,000
• France treatment: Credit for Indian tax claimed in France

Example 3: French Company Selling Indian Property

A French company sells commercial property in Mumbai purchased in 2020 for INR 5,00,00,000, sold in 2026 for INR 8,00,00,000.

• Capital gain: INR 8,00,00,000 - INR 5,00,00,000 = INR 3,00,00,000
• Classification: Long-term (held more than 24 months)
• Tax in India: 12.5% of INR 3,00,00,000 = INR 37,50,000
• TDS deducted by buyer: 12.5% under Section 195
• France treatment: Gain reported in France; credit for Indian tax claimed

Frequently Asked Questions

Does the India-France DTAA reduce capital gains tax rates on shares?

Under the current treaty, India can tax share gains only where the French investor holds at least 10% of the Indian company. Once the 2026 Amending Protocol is ratified (it was signed on 23 February 2026 and is pending ratification by both parliaments), India will have full taxing rights on capital gains from the sale of shares of Indian companies by French residents, with no treaty-imposed rate cap. Where taxable, India applies its domestic capital gains tax rates (12.5% LTCG, 20% STCG on listed shares). Relief from double taxation comes through the foreign tax credit mechanism in France.

What changes under the 2026 Amending Protocol regarding capital gains?

The key change is the removal of the 10% shareholding threshold from Article 14(5). Currently, India can only tax gains on shares where the French investor holds at least 10% of the Indian company's capital. Once the Protocol is ratified and enters into force, India will be able to tax all share disposals by French residents regardless of the size of their holding.

How does a French investor avoid double taxation on Indian capital gains?

A French investor pays capital gains tax in India at domestic rates and then claims a foreign tax credit in France. Under Article 25 (Elimination of Double Taxation), France provides a credit for the Indian tax paid against the French tax due on the same income. The credit is limited to the French tax attributable to the Indian-source capital gains.

Does the MFN clause still apply to the India-France DTAA?

For now, yes — the MFN clause (Protocol Clause 7) remains in the treaty text, though following the Supreme Court's 2023 Nestle SA ruling its operation requires a separate Section 90 notification. The 2026 Amending Protocol deletes the MFN clause, but only takes effect once ratified by both countries. Once it enters into force, France will no longer be able to claim lower rates by reference to India's treaties with other OECD member states, and the rates in the revised treaty will be final.

What is the LTCG rate on Indian listed shares for French residents?

French residents pay 12.5% LTCG tax on gains from Indian listed equity shares held for more than 12 months, with an exemption threshold of INR 1,25,000 per financial year under Section 112A. This is the full domestic rate — the DTAA does not reduce it.

Are gains from immovable property in India taxable for French residents?

Yes. Under Article 14(1), gains from the alienation of immovable property situated in India may be taxed in India at full domestic rates. India has always had this right under the treaty, and this provision has not changed with the 2026 amendment.

Can a French investor apply for a lower TDS certificate?

Yes. Under Section 197 of the Income Tax Act, a French non-resident can apply to the Assessing Officer for a lower deduction certificate if the actual tax liability is expected to be lower than the TDS rate. This is useful where the cost of acquisition significantly reduces the taxable gain.