Dividend Tax Rate Between India and France
The India-France Double Taxation Avoidance Convention (DTAC), signed on September 29, 1992, and effective from August 1, 1994, governs the taxation of dividend income flowing between the two countries. Under the current treaty, the withholding tax rate on dividends is capped at 10% of the gross amount under Article 11 (the India-France treaty uses Article 11 for dividends, unlike the OECD model which uses Article 10). This is significantly lower than India's domestic rate of 20% (plus applicable surcharge and 4% health and education cess) under Section 195 of the Income Tax Act, 1961.
The India-France DTAA is of considerable commercial importance given the substantial bilateral investment between the two economies. French companies maintain significant presence in India across defence, energy, infrastructure, luxury goods, financial services, and technology sectors. Major French investors in India include groups like Renault, Schneider Electric, Saint-Gobain, BNP Paribas, and TotalEnergies.
A landmark Amending Protocol was signed on February 23, 2026, which fundamentally restructures the dividend taxation provisions. Once ratified, the Protocol will replace the current uniform 10% rate with a differentiated structure: 5% for substantial shareholders (holding 10%+ of capital) and 15% for portfolio investors. The Protocol also removes the controversial Most-Favoured-Nation (MFN) clause and introduces full source-country taxation rights on capital gains from share sales. As of March 2026, the Protocol is pending ratification by the parliaments of both countries.
Treaty Rate vs Domestic Rate: Detailed Comparison
Current Rate: Uniform 10% (Pre-Protocol)
Under the current Article 11(2) of the India-France DTAC, dividends paid by a company resident in one contracting state to the beneficial owner who is a resident of the other state are taxed at a maximum rate of 10% of the gross amount. This uniform 10% rate applies regardless of the percentage of shareholding, benefiting both strategic investors and portfolio holders equally.
2026 Amending Protocol: 5% / 15% Differentiated Rates (Pending Ratification)
The Amending Protocol signed on February 23, 2026 introduces a two-tier dividend tax structure:
5% for substantial shareholders: Under the amended Article 11(2)(a), dividends paid to a company that directly holds at least 10% of the capital of the paying company will be taxed at a maximum rate of 5% of the gross amount. This is a significant reduction from the current 10% rate and is designed to encourage long-term strategic investment between India and France.
15% for portfolio investors: Under the amended Article 11(2)(b), all other dividends will be taxed at a maximum rate of 15%. This represents an increase from the current 10% rate for portfolio investors. However, since India's domestic rate is 20% (plus surcharge and cess), the 15% treaty rate still provides a benefit compared to the domestic rate.
| Category | Current DTAA Rate | 2026 Protocol Rate | Domestic Rate (India) |
|---|---|---|---|
| Substantial holding (10%+ capital) | 10% | 5% (pending ratification) | 20% + surcharge + cess |
| Portfolio investors / General | 10% | 15% (pending ratification) | 20% + surcharge + cess |
Impact Assessment
The differentiated rate structure under the 2026 Protocol significantly favours strategic, long-term investors. A French parent company holding 10% or more of an Indian subsidiary's capital will enjoy a 50% reduction in withholding tax (from 10% to 5%). Conversely, French individual investors and portfolio funds holding less than 10% will see a 50% increase (from 10% to 15%). This reflects the global trend towards incentivising substantial direct investment while limiting passive treaty shopping.
Who Qualifies for the Reduced Rate
Beneficial Ownership Test
The recipient must be the beneficial owner of the dividends. This requires the recipient to have the legal and economic right to use, enjoy, and dispose of the dividend income without being a mere agent, nominee, or conduit. The beneficial ownership test has been particularly scrutinised in the India-France context, especially for holding structures involving French SAS (Societe par Actions Simplifiee) or SARL entities.
Most-Favoured-Nation (MFN) Clause — Removed by 2026 Protocol
The original India-France DTAC contained a Most-Favoured-Nation (MFN) clause in its Protocol. This clause provided that if India subsequently entered into a DTAA with a third OECD member country providing a lower rate on dividends, interest, royalties, or FTS, the same lower rate would automatically apply to the India-France treaty. The MFN clause was the subject of extensive litigation, including a landmark Supreme Court decision. The 2026 Amending Protocol deletes the MFN clause entirely, bringing certainty to the applicable rates.
Principal Purpose Test (MLI)
Since both India and France have ratified the MLI, the Principal Purpose Test (PPT) applies to the India-France DTAC. Treaty benefits may be denied if one of the principal purposes of an arrangement was to obtain a treaty benefit inconsistent with the object and purpose of the relevant provision. The 2026 Amending Protocol also incorporates applicable BEPS MLI provisions directly into the treaty text.
GAAR Applicability
India's General Anti-Avoidance Rules (GAAR) under Sections 95-102 of the Income Tax Act apply as an additional anti-avoidance measure. GAAR can override treaty benefits where an arrangement is determined to be an impermissible avoidance arrangement with the main purpose of obtaining a tax benefit.
Dividend-Specific Treaty Provisions
Source Country Taxation (Article 11(1))
Under Article 11(1), dividends paid by a company resident in India to a resident of France may be taxed in France. However, Article 11(2) preserves India's right as the source country to tax the dividends, subject to the applicable rate ceiling. Both countries retain concurrent taxation rights on dividend income.
Definition of Dividends (Article 11(3))
The term "dividends" includes income from shares, jouissance shares, jouissance rights, mining shares, founders' shares, or other rights participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the domestic law of the source country.
PE Attribution Exception (Article 11(4))
If the beneficial owner carries on business through a permanent establishment in the source country and the shareholding generating the dividends is effectively connected with that PE, the dividends are taxed as business profits under Article 7 rather than under Article 11. This is relevant for French companies with PE presence in India through liaison offices, branch offices, or project offices.
Capital Gains on Shares — 2026 Protocol Change
The 2026 Amending Protocol introduces a significant change by granting the source country full taxing rights on capital gains arising from the sale of shares of a company resident in that country. Previously, certain capital gains were taxable only in the country of residence. This change is expected to impact French investors disposing of Indian company shares.
Documentation Required
Tax Residency Certificate (TRC)
The French resident must obtain a Tax Residency Certificate from the French tax administration (Direction Generale des Finances Publiques). The TRC must confirm tax residency in France for the relevant financial year.
Form 10F
Form 10F must be filed electronically on India's Income Tax e-filing portal, providing the French resident's status, nationality, taxpayer identification number (French SIREN/SIRET for companies), period of residential status, and registered address.
Self-Declaration of Beneficial Ownership
A self-declaration confirming beneficial ownership of the dividend income, confirming that the recipient is not acting as an agent, nominee, or conduit, and stating whether a PE exists in India.
No-PE Certificate
A declaration that the recipient does not have a permanent establishment in India to which the shareholding is effectively connected.
Withholding Procedure for Indian Payers
Section 195 TDS Compliance
The Indian payer must deduct TDS at the applicable DTAA rate at the time of credit or payment, whichever is earlier. Under Section 195, if the French recipient has furnished all required documentation (TRC, Form 10F, beneficial ownership declaration), the payer applies the treaty rate of 10% (or 5%/15% once the 2026 Protocol is ratified).
Form 15CA and Form 15CB
For dividend remittances to France:
- Remittance up to INR 5 lakh: Only Form 15CA Part A required
- Remittance exceeding INR 5 lakh: Form 15CA Part C + Form 15CB (CA certificate) confirming TDS at the correct treaty rate
- With Section 197 certificate: Form 15CA Part B
Quarterly TDS Return (Form 27Q)
The payer files quarterly TDS returns in Form 27Q, reporting the dividend payment, TDS deducted, and the applicable DTAA article.
Common Disputes and Judicial Precedents
MFN Clause Litigation
The India-France DTAC's MFN clause has been one of the most litigated provisions in Indian tax treaty jurisprudence. French taxpayers argued that India's subsequent DTAAs with OECD countries at lower rates (such as 5% for dividends in certain treaties) should automatically apply to the India-France treaty through the MFN clause. The matter reached the Supreme Court of India, which delivered a landmark ruling clarifying the scope and applicability of MFN clauses. The 2026 Amending Protocol resolves this controversy by deleting the MFN clause entirely, thereby establishing fixed rates that are not subject to change based on India's treaties with other countries.
Beneficial Ownership Challenges for French Holding Companies
Indian tax authorities have challenged treaty benefits where French holding companies (SAS or SARL entities) were found to lack substance and were merely conduits for third-country investors. The authorities have applied the beneficial ownership test strictly, requiring French entities to demonstrate that they exercise genuine control over the dividend income, have their own employees, maintain proper books of accounts, and make independent investment decisions.
Impact of Supreme Court MFN Ruling
The Supreme Court's ruling on the MFN clause had significant implications for the applicable dividend rate. The Court examined whether the MFN clause operated automatically or required a separate notification. The 2026 Protocol's deletion of the MFN clause provides prospective certainty but does not resolve claims for past years where the MFN rate was applied.
Section 90(2) Interaction
Under Section 90(2) of the Income Tax Act, the taxpayer is entitled to the more beneficial rate between the domestic law and the DTAA. For the current 10% rate, the treaty is always more beneficial than the domestic 20%. Once the 2026 Protocol's 15% rate for portfolio investors takes effect, it will still be more beneficial than the domestic 20% rate.
Practical Examples and Calculations
Example 1: French Parent Company — Current Treaty Rate
A French corporation (Societe Anonyme) holds 100% of shares in an Indian subsidiary. The Indian subsidiary declares a dividend of INR 5,00,00,000 (INR 5 crore).
- Domestic rate: 20% = INR 1,00,00,000 (plus surcharge and cess)
- Current DTAA rate (Article 11(2)): 10% = INR 50,00,000
- Tax saving under DTAA: INR 50,00,000+
Once the 2026 Protocol is ratified, the rate drops to 5%, and the TDS would be INR 25,00,000 — a further saving of INR 25,00,000.
Example 2: French Individual Investor — Current Treaty Rate
A French individual investor holds shares in an Indian listed company. Dividend received: INR 20,00,000.
- Domestic rate: 20% = INR 4,00,000 (plus surcharge and cess)
- Current DTAA rate (Article 11(2)): 10% = INR 2,00,000
- Tax saving under DTAA: INR 2,00,000
Once the 2026 Protocol takes effect, the rate rises to 15% = INR 3,00,000. This is still lower than the domestic rate of 20% and will apply under Section 90(2).
Example 3: Post-Protocol Impact on French Fund
A French investment fund (OPCVM) holds a diversified portfolio in Indian equities with no single holding exceeding 10%. Annual dividends: INR 50,00,000.
- Current treaty rate: 10% = INR 5,00,000
- Post-protocol rate: 15% = INR 7,50,000
- Additional tax post-protocol: INR 2,50,000 per year
French investment funds and individual investors should factor in the increased withholding cost when making investment decisions in Indian equities, once the 2026 Protocol is ratified.
Frequently Asked Questions
What is the current dividend tax rate under the India-France DTAA?
Under the current treaty (Article 11(2)), dividends are taxed at a uniform rate of 10% of the gross amount, regardless of the percentage of shareholding. This applies to both French parent companies and individual portfolio investors.
What changes does the 2026 Amending Protocol introduce?
The Protocol signed on February 23, 2026 introduces a differentiated rate: 5% for companies holding at least 10% of the capital (substantial shareholders) and 15% for all other dividend recipients. The Protocol is pending ratification by both countries and is not yet in force.
Has the MFN clause been removed?
Yes. The 2026 Amending Protocol deletes the Most-Favoured-Nation clause from the Protocol to the DTAC. This resolves longstanding litigation and ensures that the dividend rate is fixed and not subject to automatic reduction based on India's treaties with other OECD countries.
What documents are required to claim the reduced DTAA rate?
A valid Tax Residency Certificate from the French tax administration, Form 10F filed on India's e-filing portal, a beneficial ownership declaration, and a no-PE certificate. For remittances exceeding INR 5 lakh, Form 15CA and Form 15CB are also required.
Does the MLI's Principal Purpose Test apply?
Yes. Both India and France have ratified the MLI, and the PPT applies to the India-France DTAC. The 2026 Amending Protocol also incorporates applicable BEPS MLI provisions directly into the treaty text, providing additional anti-avoidance protection.
Will portfolio investors be worse off after the Protocol?
French portfolio investors holding less than 10% in Indian companies will see their dividend withholding rate increase from 10% to 15% once the Protocol is ratified. However, the 15% rate is still more favourable than the domestic Indian rate of 20% (plus surcharge and cess), so they still benefit from the treaty.
When will the 2026 Protocol take effect?
The Protocol will take effect after ratification by the parliaments of both India and France and completion of internal legal procedures. As of March 2026, no specific date has been announced for ratification. Until the Protocol enters into force, the current uniform 10% rate continues to apply.
France — Dividend Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| Substantial holding (10%+ equity) — Current treaty Beneficial owner is a company holding at least 10% of the capital of the paying company (current rate under existing treaty) | 10% | 20% + surcharge + 4% cess | Article 11(2) |
| General (portfolio investors) — Current treaty All other cases (current rate under existing treaty; uniform 10% for all shareholders) | 10% | 20% + surcharge + 4% cess | Article 11(2) |
| Substantial holding (10%+ equity) — 2026 Protocol (pending ratification) Under the Amending Protocol signed February 23, 2026: reduced rate for companies holding at least 10% of the capital. Not yet in force — pending ratification by both countries. | 5% | 20% + surcharge + 4% cess | Article 11(2)(a) (as amended) |
| General (portfolio investors) — 2026 Protocol (pending ratification) Under the Amending Protocol signed February 23, 2026: rate for all other dividend recipients. Not yet in force — pending ratification by both countries. | 15% | 20% + surcharge + 4% cess | Article 11(2)(b) (as amended) |
France — Interest Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| General Interest paid to a beneficial owner who is a resident of the other contracting state | 10% | 20% + surcharge + 4% cess | Article 12(2) |
| Government / Central Bank Interest derived and beneficially owned by the Government of France, a political subdivision or local authority, the Banque de France, or any financial institution wholly owned by the Government of France | 0% (Exempt) | 20% + surcharge + 4% cess | Article 12(3) |