Published: 25 February 2026Economy
India-France Tax Treaty Amended: Capital Gains Shift to Company Residence; MFN Clause Removed
India and France signed a protocol in February 2026 to amend their 1992 Double Taxation Avoidance Convention (DTAC). Key changes include shifting capital gains taxation to the company's jurisdiction of residence and removal of the Most Favoured Nation (MFN) clause.
Dividend tax rates were set at 5% for shareholdings of 10% or more and 15% for other cases. A Service Permanent Establishment (PE) concept was introduced, which could impact Indian IT companies operating in France. The amendment provides clarity on taxing rights and is expected to reduce double taxation disputes between the two countries.
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What is the safe harbour threshold for IT services after Budget 2026 changes?
Explanation · Correct answer CSafe harbour threshold for IT services raised from ₹300 crore to ₹2,000 crore at 15.5% margin.
Frequently asked questions
What changes did India and France make to their 1992 Double Taxation Avoidance Convention in 2026?
India and France signed a **protocol in February 2026** to amend their **1992 Double Taxation Avoidance Convention (DTAC)**. Key changes: (1) **capital gains taxation shifted** to the company's jurisdiction of residence; (2) **MFN clause removed**; (3) dividend tax rates set at **5% for shareholdings of 10%+ and 15% for others**; (4) **Service Permanent Establishment (PE)** concept introduced.
What is the Most Favoured Nation MFN clause and why was it removed from India-France tax treaty in 2026?
The **Most Favoured Nation (MFN) clause** in tax treaties requires that the best tax rate/condition offered to one country must be extended to all treaty partners with MFN status. The **India-France DTAC amendment (February 2026)** removed this clause. Its removal means India-France tax terms are now **standalone**, unlinked to more favourable terms India might offer to third countries under other tax treaties.
How does the India-France DTAC 2026 amendment affect Indian IT companies operating in France?
The **India-France DTAC 2026 amendment** introduced the **Service Permanent Establishment (PE)** concept, which **could impact Indian IT companies** operating in France. A service PE means Indian IT firms providing services in France for extended periods could be deemed to have a taxable presence there, potentially increasing their tax liability in France.
What are the new dividend tax rates under the India-France DTAC amended in 2026?
Under the **India-France DTAC amendment (February 2026)**: **5% dividend tax** for shareholdings of **10% or more**; **15% dividend tax** for all other cases. These revised rates replace the previous structure and aim to balance the interests of both Indian and French investors while preventing double taxation.
What is a Double Taxation Avoidance Convention DTAC and why did India amend it with France in 2026?
A **Double Taxation Avoidance Convention (DTAC)** is a bilateral tax treaty preventing income from being taxed twice — both in the source country and the resident's country. India and France signed the original DTAC in **1992**. The **February 2026 protocol** amends it to modernize capital gains treatment, remove the MFN clause, introduce Service PE, and update dividend tax rates to reflect contemporary investment flows.
