Royalty Tax Rate Between India and France Under DTAA

Royalty Tax Rate Between India and France

Under Article 13 of the India-France Double Taxation Avoidance Convention (DTAC), royalties arising in one Contracting State and paid to a resident of the other Contracting State are subject to a maximum withholding rate of 10% of the gross amount if the recipient is the beneficial owner. This represents a significant reduction from India's domestic withholding rate of 20% (plus applicable surcharge and health and education cess) under Section 195 read with Section 115A of the Income Tax Act, 1961.

The India-France DTAC was originally signed on 29 September 1992 and came into force on 1 August 1994. The treaty has undergone significant developments, including the application of the Multilateral Instrument (MLI) from 2019 and, most recently, the signing of an Amending Protocol on 23 February 2026. This protocol is a landmark amendment that deletes the controversial Most-Favoured-Nation (MFN) clause, narrows the scope of Fees for Technical Services, introduces a Service PE clause, and revises dividend taxation rates.

Notably, the royalty provisions under Article 13 have remained largely unchanged through these amendments. The 10% rate on royalties has been maintained since the treaty's inception, and the 2026 Amending Protocol did not modify the royalty rate. However, the deletion of the MFN clause means that France can no longer automatically benefit from lower royalty rates that India may negotiate with other OECD member countries in the future.

Treaty Rate vs Domestic Rate: Detailed Comparison

Indian tax law imposes a domestic withholding rate of 20% (plus surcharge and health and education cess) on royalty payments to non-residents under Section 195 read with Section 115A of the Income Tax Act. This rate was increased from 10% to 20% effective 1 April 2023 by the Finance Act, 2023. Under Section 90(2), a non-resident can opt for the more beneficial rate under the applicable DTAA.

The India-France DTAC applies a uniform 10% rate to all categories of royalties. Unlike the India-Australia treaty (which distinguishes between IP and equipment royalties at 15% and 10% respectively), the India-France treaty treats all royalty types equally. The effective domestic rate, inclusive of surcharge and cess, reaches approximately 20.8% to 21.84%, making the treaty rate a saving of roughly 10-12 percentage points.

It is important to note that the India-France DTAC uniquely uses Article 13 for royalties and FTS (not Article 12 as in most other Indian DTAAs). This is simply a numbering difference in the treaty articles and does not affect the substantive provisions. The royalty and FTS provisions are combined under a single Article 13, similar to how the India-Japan DTAA combines them under Article 12.

Who Qualifies for the Reduced Rate

To claim the reduced 10% royalty rate under the India-France DTAC, the recipient must satisfy several conditions:

Beneficial Ownership Requirement

The recipient must be the beneficial owner of the royalties. This means the recipient must have the right to use and enjoy the royalty income without any obligation to pass it to another person. Post-MLI and the 2026 Amending Protocol, the Principal Purpose Test (PPT) provides a strong anti-abuse mechanism. If one of the principal purposes of an arrangement was to obtain the treaty benefit, the benefit can be denied.

Tax Residency Requirement

The recipient must be a tax resident of France as defined under Article 4 of the treaty. A valid Tax Residency Certificate (TRC) issued by the French tax administration (Direction Generale des Finances Publiques, DGFiP) is mandatory. France has a comprehensive residency determination framework, and entities must demonstrate genuine fiscal domicile in France.

No Permanent Establishment Connection

The reduced rate does not apply if the beneficial owner carries on business through a permanent establishment (PE) in India and the royalty-generating right or property is effectively connected with that PE. The 2026 Amending Protocol notably introduces a Service PE clause, which means that French companies providing services in India for extended periods may now trigger PE status more easily than under the original treaty.

Impact of MFN Clause Deletion

The original India-France DTAC contained a Most-Favoured-Nation (MFN) clause in the protocol, which entitled France to automatically benefit from any lower royalty or FTS rate that India negotiated with another OECD member. This clause was the subject of extensive litigation, culminating in a Supreme Court ruling that MFN benefits require a separate government notification. The 2026 Amending Protocol has permanently deleted the MFN clause, ending this interpretational ambiguity.

Royalty-Specific Treaty Provisions

Article 13 of the India-France DTAC contains provisions addressing royalty taxation:

Definition of Royalties

Under Article 13, the term "royalties" means payments of any kind received as consideration for:

• The use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematograph films and films or tapes used for radio or television broadcasting
• The use of, or the right to use, any patent, trademark, design or model, plan, secret formula or process
• Information concerning industrial, commercial, or scientific experience (know-how)

Combined Royalty and FTS Article

Like the India-Japan DTAA, the India-France DTAC addresses both royalties and fees for technical services under a single article (Article 13) with the same 10% rate. The FTS definition covers payments for services of a managerial, technical, or consultancy nature. The 2026 Amending Protocol has narrowed the FTS definition to align with the India-US DTAA, which requires the "make available" condition.

Equipment Payments

Article 13 also covers payments for the use of equipment. Unlike some treaties that separate equipment royalties from IP royalties, the India-France DTAC treats equipment use payments at the same 10% rate. This simplifies classification for French companies leasing equipment to Indian entities.

Source Country Taxation

The treaty allows the source country to tax royalties at the reduced 10% rate. The residence country (France) provides relief through a tax credit mechanism. France generally follows the credit method for eliminating double taxation, allowing French taxpayers to credit Indian taxes paid against their French tax liability on the same income.

Documentation Required

French companies claiming the reduced 10% royalty rate on payments from India must furnish:

Tax Residency Certificate (TRC)

A valid TRC from the Direction Generale des Finances Publiques (DGFiP) confirming French tax residency. French TRCs are typically issued as "Attestation de residence fiscale" and are well-standardised documents accepted by Indian tax authorities.

Form 10F

If the TRC does not contain all prescribed particulars (name, status, nationality, tax identification number, period of residency, address), the recipient must file Form 10F electronically on the Indian Income Tax portal.

Self-Declaration

A self-declaration confirming beneficial ownership, absence of PE in India, and that the arrangement is not primarily motivated by tax avoidance.

PAN Considerations

While an Indian PAN is not mandatory, Section 206AA may trigger higher withholding at 20% without a PAN. Per CBDT Notification No. 53/2016, treaty rates prevail over Section 206AA for non-residents with prescribed documentation.

Withholding Procedure for Indian Payers

Indian companies paying royalties to French residents must follow compliance procedures under Section 195:

Step 1: Classify the Payment

Determine whether the payment constitutes a royalty under Article 13 of the treaty. Payments for copyrights, patents, trademarks, franchise rights, equipment use, and know-how all qualify. Distinguish between royalties (Article 13) and business profits (Article 7) -- the classification determines whether the 10% cap applies.

Step 2: Verify Documentation

Collect and verify the TRC from DGFiP, Form 10F, and self-declaration from the French recipient before applying the treaty rate.

Step 3: Deduct TDS at Treaty Rate

Deduct TDS at 10% on the gross royalty amount. The TDS must be deposited within 7 days of the following month.

Step 4: File Form 15CA/15CB

File Form 15CA electronically for remitting the royalty. If the remittance exceeds INR 5 lakh, obtain a Form 15CB certificate from a Chartered Accountant citing Article 13 of the India-France DTAC.

Step 5: Issue TDS Certificate

Issue Form 16A to the French recipient within 15 days from the due date of the quarterly TDS return.

Common Disputes and Judicial Precedents

The India-France DTAC has been the subject of significant judicial activity:

MFN Clause Disputes (Now Resolved)

The most prominent litigation under the India-France DTAC involved the MFN clause. French taxpayers argued that if India signed a DTAA with another OECD member with lower royalty or FTS rates, France should automatically benefit from those lower rates. The Supreme Court of India ruled that MFN benefits require a separate government notification and do not apply automatically. The 2026 Amending Protocol permanently resolves this by deleting the MFN clause entirely.

Reimbursement of Seconded Employees

In a notable ITAT ruling, the tribunal held that reimbursement of salary costs for employees seconded from a French parent to an Indian subsidiary does not qualify as FTS under Article 13. The key factor was whether the seconded employees were under the control of the Indian entity (reimbursement, not FTS) or the French parent (potentially FTS).

Software Payments

Following the Supreme Court's 2021 ruling in Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT, payments for standard software licences from French software companies may not constitute royalties under the treaty. This ruling benefits French technology companies with significant software sales to Indian customers, such as enterprise resource planning, design software, and industrial automation platforms.

Make Available Condition for FTS

With the 2026 Amending Protocol aligning the FTS definition with the India-US DTAA, the "make available" requirement will apply to the India-France treaty. This means that routine consultancy services where no technical knowledge is transferred to the Indian recipient may no longer qualify as FTS, potentially reducing or eliminating Indian withholding tax on such services.

Practical Examples and Calculations

Example 1: Patent Licence for Pharmaceuticals

A French pharmaceutical company licences a drug patent to an Indian generic manufacturer for INR 2,00,00,000. Under domestic law, TDS at approximately 20.8% would be INR 41,60,000. Under the India-France DTAC, the withholding is capped at 10%, i.e., INR 20,00,000. The saving is INR 21,60,000.

Example 2: Trademark Franchise (Luxury Goods)

A French luxury brand licences its trademark to an Indian retailer for INR 1,50,00,000. Under the treaty, TDS is 10% (INR 15,00,000) versus 20.8% domestically (INR 31,20,000). The saving is INR 16,20,000.

Example 3: Know-How Transfer (Industrial)

A French engineering company transfers proprietary manufacturing know-how to an Indian industrial firm for INR 3,00,00,000. This qualifies as a royalty under Article 13 (information concerning industrial experience). The treaty rate of 10% applies: INR 30,00,000 versus INR 62,40,000 domestically. Saving: INR 32,40,000.

Example 4: Film Broadcasting Rights

A French media company licences broadcasting rights for cinematograph films to an Indian streaming platform for INR 80,00,000. Under Article 13, this is a royalty (copyright of artistic/scientific work). The treaty rate of 10% applies: INR 8,00,000 versus INR 16,64,000 at domestic rates. Saving: INR 8,64,000.

Frequently Asked Questions

What is the royalty withholding tax rate under the India-France DTAC?

Under Article 13(2) of the India-France DTAC, the royalty withholding tax rate is capped at 10% of the gross amount of royalties, provided the recipient is the beneficial owner and a tax resident of France. This rate applies uniformly to all categories of royalties, including copyrights, patents, trademarks, know-how, and equipment use payments.

Why does the India-France treaty use Article 13 instead of Article 12 for royalties?

This is simply a numbering difference. The India-France DTAC uses Article 13 for royalties and FTS, while most other Indian DTAAs use Article 12. The substantive provisions are similar. Article 11 in the India-France treaty covers dividends, Article 12 covers interest, and Article 13 covers royalties, FTS, and equipment use payments.

What is the impact of the 2026 Amending Protocol on royalties?

The 2026 Amending Protocol did not change the 10% royalty rate. However, it deleted the Most-Favoured-Nation (MFN) clause, which means France can no longer automatically benefit from lower royalty rates India may negotiate with other OECD countries. It also narrowed the FTS definition and introduced a Service PE clause.

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

A French company must provide: (1) a valid Tax Residency Certificate (Attestation de residence fiscale) from the French DGFiP, (2) Form 10F if the TRC lacks prescribed particulars, and (3) a self-declaration confirming beneficial ownership and absence of PE in India.

How did the MFN clause historically affect royalty rates?

The MFN clause in the original protocol entitled France to benefit from any lower royalty or FTS rate India agreed with another OECD member. This led to extensive litigation about whether the benefit was automatic or required a government notification. The Supreme Court ruled notifications were required, and the 2026 Amending Protocol permanently deletes the clause.

Are software licence payments classified as royalties under the treaty?

Following the Supreme Court's 2021 ruling in Engineering Analysis Centre of Excellence, payments for standard off-the-shelf software licences are generally not royalties. However, payments for customised software involving copyright transfers, or software distributed through licence agreements granting rights to reproduce or modify, may still qualify as royalties under Article 13.

Can a French company apply for a lower withholding certificate?

Yes. Under Section 197 of the Income Tax Act, a French company can apply to the Assessing Officer for a certificate authorising the Indian payer to deduct tax at a rate lower than the 10% treaty rate, if the actual tax liability is expected to be lower due to deductions, expenses, or available credits.