The Central Board of Direct Taxes (CBDT), on Monday, 23 February 2026, announced that India and France have signed a protocol to amend the Double Taxation Avoidance Convention (DTAC), which was originally signed back in September 1992, in an effort to boost tax certainty in the economy.
In an official announcement, CBDT said that during French President Emmanuel Macron’s recent visit to India, both nations had agreed to amend the double tax avoidance treaty, which provides full taxation rights to capital gains from the sale of company shares.
“The Amending Protocol will provide greater tax certainty to the taxpayers and boost flow of investment, technology and personnel between India and France, and thereby strengthen the economic relationship between the two countries,” said CBDT in its statement.
What changes does the protocol bring?
The DTAC Amending Protocol will also remove the Most-Favoured-Nation (MFN) clause, which exists in the Double Taxation Avoidance Convention, in turn bringing rest to issues relating to the same.
The changes are also implemented in the taxes on the income from dividends. The amendment replaces the earlier single tax rate of 10% with split tax rates.
According to the official announcement, the authorities have now imposed a split rate of 5% for those holdings which are at least 10% of the capital, and another split rate of 15% tax for all other cases of holdings.
“It also modifies the definition of ‘Fees for Technical Services’ by aligning it with the definition in India US Double Taxation Avoidance Agreement, and expands the scope of Permanent Establishment by adding Service PE,” said CBDT in its announcement.
The intent of amending the double tax avoidance convention seems to serve the twin purpose of addressing ambiguity in provision of treaty benefits as well as equitable distribution of taxation rights, according to Abheet Sachdeva, Partner – M&A Tax, Nangia Global, a professional services firm.
The expert also highlighted that dividends emanating from India are subject to 10% tax deducted at source (TDS). This tax outflow could be reduced with application of a most favoured nation (MFN) clause.
However, application and availability of MFN benefits have been a subject matter of debate, with the Supreme Court of India ruling that for application of MFN under a tax treaty, a separate specific notification should be issued by the Indian government, explained Sachdeva.
What would the tax changes mean?
Abheet Sachdeva said that the tax changes are set to serve as a stimulant to attract foreign direct investments (FDI) from France to India, to enable companies to upstream higher net-India tax profits to their home countries.
“The proposal to bifurcate dividend withholding tax under separate slabs–5% where the investor/ shareholder holds 10% or more of capital and 15% otherwise, would serve as an impetus to attract French FDI into India and enable existing as well as potential French Companies to upstream higher net-India tax profits back to home country,” said Sachdeva.
The protocol intends to vest capital gains taxing rights with the source state, irrespective of the shareholding threshold. From India’s perspective, this secures capital gains tax revenue for India, but this may act as a deterrent for French foreign portfolio investors, said the expert.