FTS Tax Rate Between India and France Under DTAA

FTS Tax Rate Between India and France

The India-France Double Taxation Avoidance Agreement (DTAA), originally signed on 29 September 1992 and effective from 1 August 1994, provides a concessional withholding tax rate of 10% on fees for technical services (FTS) under Article 13. This is significantly lower than India's domestic withholding tax rate of 20% (plus applicable surcharge and 4% health and education cess) under Section 115A read with Section 195 of the Income Tax Act, 1961.

Unlike the India-USA and India-Singapore DTAAs, the original India-France treaty does not contain a "make available" clause for FTS. This means the scope of taxable FTS under the India-France DTAA has historically been broader -- any payment for managerial, technical, or consultancy services qualifies as FTS, regardless of whether the service makes available technical knowledge to the recipient. However, the Amending Protocol signed on 23 February 2026 introduces a significant narrowing of the FTS definition, aligning it more closely with the India-USA treaty's "make available" concept.

It is important to note that royalties and FTS are covered under Article 13 of the India-France DTAA (not Article 12, which deals with interest). This is a structural difference from many other Indian DTAAs where Article 12 covers royalties and FTS.

Treaty Rate vs Domestic Rate: Detailed Comparison

The taxation of technical services under the India-France DTAA is governed by Article 13, which provides a uniform rate for all categories of FTS payments.

10% Rate for General FTS (Article 13(2))

Under Article 13(2), fees for technical services paid by an Indian resident to a French resident (who is the beneficial owner) are taxed at a maximum rate of 10% of the gross amount. This applies uniformly to all categories of managerial, technical, and consultancy services. The 10% rate represents a saving of at least 10 percentage points compared to the domestic rate of 20% (plus surcharge and cess, making the effective domestic rate approximately 21.84%).

0% Rate -- Services Not Qualifying as FTS (Business Profits Under Article 7)

Under the 2026 Amending Protocol, the definition of FTS is being narrowed to focus on services that involve the transfer of technical know-how. Routine technical services such as consultancy, advisory support, cybersecurity services, and market research are expected to fall outside the scope of source-based taxation. If a payment does not qualify as FTS and the French provider has no permanent establishment in India, the payment is treated as business profits under Article 7 and is not taxable in India.

Service PE Under the 2026 Protocol

The Amending Protocol also introduces a Service PE clause. This means that even if a French company does not have a fixed place of business in India, it may be deemed to have a PE if it provides services in India for a specified duration. If a Service PE is triggered, the FTS income attributable to that PE would be taxed as business profits at India's corporate tax rate of 35% for foreign companies.

Who Qualifies for the Reduced Rate

Qualifying for the 10% FTS rate under the India-France DTAA involves several conditions:

Beneficial Ownership Requirement

The French recipient must be the beneficial owner of the FTS income. This means the recipient must have the right to use, enjoy, and dispose of the income without being a mere agent, nominee, or conduit. The beneficial ownership requirement prevents treaty shopping through intermediary entities.

Tax Residency in France

The recipient must be a tax resident of France under Article 4 of the treaty. This requires demonstrating domicile, residence, place of management, or any other criterion of a similar nature under French domestic law. For companies, this typically means being incorporated or having the place of effective management in France.

No PE Attribution

Under Article 13(4), if the French recipient carries on business through a permanent establishment in India and the right or property giving rise to FTS is effectively connected with that PE, the income is taxed as business profits under Article 7 at the applicable corporate rate (35% for foreign companies), not at the reduced 10% rate.

MLI Principal Purpose Test (PPT)

Since both India and France have ratified the Multilateral Instrument (MLI), the Principal Purpose Test (PPT) applies. Treaty benefits will be denied if one of the principal purposes of an arrangement was to obtain the benefit of the 10% reduced rate. This anti-avoidance provision targets structures designed primarily to access treaty benefits without genuine business substance in France.

FTS-Specific Treaty Provisions

Definition of FTS Under Article 13(4)

The India-France DTAA defines "fees for technical services" as payments of any kind to any person, other than payments to an employee or for independent personal services under Article 15, in consideration for services of a managerial, technical, or consultancy nature. This definition is broader than the "fees for included services" definition in the India-USA DTAA, which requires a make-available test.

The 2026 Amending Protocol -- Narrowing the Scope

The Amending Protocol signed on 23 February 2026 introduces a narrower definition of FTS, aligned with the India-USA DTAA. Under the revised definition, India has agreed to restrict taxation of FTS to cases involving the transfer of technical know-how -- meaning the technical knowledge, experience, skill, or process must remain with the Indian recipient and the recipient must be able to use that knowledge independently in the future without needing to engage the French service provider again. This is the "make available" concept. The Protocol is pending completion of internal ratification procedures in both countries.

Exclusions from FTS

Certain payments are excluded from the FTS definition:

• Payments to employees of the person making the payment
• Payments for independent personal services covered under Article 15
• Payments that constitute business profits under Article 7 (where the service does not qualify as FTS)

Interaction with the MFN Clause (Now Deleted)

The original India-France DTAA contained a Most Favoured Nation (MFN) clause that allowed France to benefit from lower rates India might agree with other OECD countries. The 2026 Amending Protocol deletes the MFN clause, removing this automatic rate-matching mechanism. This change is significant because it means the 10% rate is now the fixed treaty rate, unaffected by rates in other Indian DTAAs.

Documentation Required

To claim the reduced 10% DTAA rate on FTS payments to French residents, the following documentation is required:

Tax Residency Certificate (TRC)

The French recipient must provide a Tax Residency Certificate issued by the French tax administration (Direction Generale des Finances Publiques). This certificate confirms French tax residency under the treaty and is a mandatory prerequisite under Section 90(4) of the Indian Income Tax Act.

Form 10F

Form 10F must be filed electronically on India's income tax e-filing portal, providing the recipient's status (individual, company, etc.), French tax identification number, and residential status details.

Self-Declaration

A declaration confirming: (i) beneficial ownership of the FTS income; (ii) no permanent establishment in India; and (iii) that the FTS payment is not effectively connected with any PE in India.

Service Agreement and Invoices

The Indian payer should maintain the service agreement, invoices, and proof of payment to substantiate the nature of the services as FTS under the treaty. Post-2026, documentation demonstrating whether the services involve a transfer of technical know-how will become critical.

Withholding Procedure for Indian Payers

Indian entities paying for technical services to French residents must comply with the following procedures:

Section 195 Compliance

Under Section 195, the Indian payer must deduct TDS at the time of credit or payment, whichever is earlier. With valid treaty documentation, the payer can deduct TDS at 10% (without adding surcharge or cess, as treaty rates are all-inclusive). Without documentation, the domestic rate of 20% plus surcharge and cess applies.

Lower Deduction Certificate (Section 197)

If the French service provider believes the actual tax liability is lower than the treaty rate (for example, if services do not qualify as FTS under the treaty), the provider can apply for a lower deduction certificate under Section 197 to authorise the Indian payer to withhold at a reduced or nil rate.

Form 15CA and Form 15CB

For remittances exceeding INR 5 lakh, Form 15CA/15CB compliance is mandatory. The Chartered Accountant issuing Form 15CB must certify the applicable treaty rate and confirm that treaty conditions (TRC, beneficial ownership, no PE) are satisfied.

Quarterly TDS Return (Form 27Q)

The Indian payer must file quarterly TDS returns in Form 27Q, correctly reflecting the 10% treaty rate and citing Article 13 of the India-France DTAA. TDS must be deposited with the government by the 7th of the month following the month of deduction.

Common Disputes and Judicial Precedents

Scope of FTS -- Managerial vs Technical vs Consultancy

Courts have consistently interpreted the scope of FTS broadly under the India-France DTAA (unlike treaties with a make-available clause). In several rulings, the ITAT has held that management consultancy, advisory services, and market research services all qualify as FTS under Article 13 because the definition includes "managerial" and "consultancy" services without further qualification. However, the 2026 Amending Protocol is expected to change this position once ratified.

Reimbursement of Expenses vs FTS

In Safran SA (ITAT, 2023-2024), the tribunal examined whether cost reimbursements paid by an Indian subsidiary to its French parent for shared services (HR, IT support, accounting) constituted FTS. The tribunal held that pure cost reimbursements without any element of profit or service consideration do not qualify as FTS, as they represent a recovery of costs rather than consideration for services rendered.

Software Licensing and FTS

French software companies providing implementation and customisation services alongside software licensing face characterisation disputes. Courts distinguish between the software licence fee (potentially royalty under Article 13) and the implementation/customisation services (potentially FTS under Article 13). If the two are bundled in a single contract, the dominant purpose test or proportional allocation may apply.

MFN Clause Disputes (Pre-2026)

Before the 2026 Protocol deleted the MFN clause, several disputes arose regarding whether France could claim the benefit of lower FTS rates India agreed with other OECD countries. The Supreme Court of India in its 2023 ruling in Nestle SA v. ACIT held that the MFN clause requires a separate notification by the Indian government to be operative. This ruling prompted several countries, including France, to renegotiate their treaties with India.

Practical Examples and Calculations

Example 1: French IT Consultancy Firm Providing Advisory Services (FTS -- 10% Tax)

A French IT consultancy provides strategic technology advisory services to an Indian company. The annual fee is INR 2,00,00,000 (INR 2 crores).

• Domestic rate: 20% = INR 40,00,000 (plus surcharge and cess, effective ~INR 43,68,000)
• DTAA rate (Article 13(2)): 10% = INR 20,00,000
• Tax saving under DTAA: INR 23,68,000

Example 2: French Engineering Firm Providing Design Services (Post-2026 Protocol -- Potentially 0% Tax)

A French engineering firm provides design review and quality assurance services to an Indian manufacturer. The fee is INR 1,50,00,000. The services are advisory in nature and do not transfer any technical know-how to the Indian company.

• Under current treaty: 10% = INR 15,00,000
• Under 2026 Protocol (once effective): Services do not make available technical knowledge; no PE in India. Taxed as business profits under Article 7 = 0%
• Potential additional saving: INR 15,00,000

Example 3: French Company with Service PE in India

A French engineering company sends personnel to India for an 8-month project, triggering a Service PE under the 2026 Protocol. The FTS payment is INR 3,00,00,000.

• Without Service PE: 10% treaty rate = INR 30,00,000
• With Service PE: Business profits taxed at 35% on net income attributable to PE. If attributable profit is INR 1,00,00,000, tax = INR 40,00,000
• The Service PE provision can result in higher taxation for French companies with extended on-ground presence in India.

Frequently Asked Questions

What is the FTS tax rate under the India-France DTAA?

The FTS withholding tax rate under the India-France DTAA is 10% of the gross amount under Article 13(2). This is significantly lower than India's domestic rate of 20% plus surcharge and cess. The rate applies uniformly to all categories of managerial, technical, and consultancy services.

Does the India-France DTAA have a make-available clause for FTS?

The original treaty does not have a make-available clause, meaning all managerial, technical, and consultancy services qualify as FTS. However, the Amending Protocol signed on 23 February 2026 introduces a narrowed FTS definition aligned with the make-available concept, restricting FTS to services that transfer technical know-how. This change is pending ratification.

How does the 2026 Amending Protocol change FTS taxation?

The 2026 Protocol narrows the scope of FTS to services that involve the transfer of technical know-how, introduces a Service PE clause, and deletes the MFN clause. Once effective, routine services like consultancy, advisory support, and market research will likely fall outside FTS and not be taxable in India if the French provider has no PE.

What is the difference between Article 12 and Article 13 in the India-France DTAA?

Unlike many other Indian DTAAs where Article 12 covers royalties and FTS, the India-France DTAA uses Article 12 for interest and Article 13 for royalties and fees for technical services. Both royalties and FTS are taxed at 10% under Article 13(2).

What documents does a French company need to claim the reduced FTS rate?

A French company needs: (1) a Tax Residency Certificate from the French tax administration; (2) Form 10F filed on India's e-filing portal; (3) a self-declaration of beneficial ownership and no-PE; and (4) the service agreement and invoices supporting the nature of services.

Are management consultancy fees taxable under the India-France DTAA?

Under the current treaty, yes -- management consultancy fees are taxable as FTS at 10% because the treaty definition includes managerial and consultancy services. However, once the 2026 Protocol is ratified, management consultancy that does not transfer technical know-how may no longer qualify as FTS and could be exempt from Indian taxation if there is no PE.

Has the MFN clause been deleted from the India-France DTAA?

Yes. The Amending Protocol signed on 23 February 2026 deletes the Most Favoured Nation (MFN) clause from the treaty. This follows the Supreme Court of India's 2023 ruling in Nestle SA that the MFN clause requires a separate government notification to be operative.