New Delhi: India and France have signed a protocol amending the Double Taxation Avoidance Agreement (DTAA) signed in 1994, with the most significant change being the complete removal of the Most Favoured Nation (MFN) clause from the treaty.
The amendment protocol was signed on 17 February 2026 in New Delhi by CBDT Chairman Ravi Agrawal and French Ambassador Thierry Mathou. It now awaits ratification by both countries to become effective.
What was the MFN Clause & Why It Was Removed
Under the original India–France DTAA (as amended in 2016), Article 29 contained an MFN provision. It stated that if India later granted more favourable tax rates or concessions to any other OECD member country on dividends, interest, royalties, fees for technical services (FTS) or capital gains, the same lower rate/concession would automatically apply to French residents as well.
This clause had become a major concern for France because India signed later treaties with countries like Lithuania, Colombia, Serbia, etc. (non-OECD at the time of signing but later joined OECD), offering lower withholding tax rates (especially 5% on dividends and 10% on royalties/FTS). France argued that these lower rates should automatically apply to French residents too.
India had consistently refused to extend these lower rates to France, leading to prolonged disputes and uncertainty for French investors.
Key Changes in the Amended Protocol
- MFN clause completely deleted — No automatic extension of lower rates given to any third country.
- Withholding tax rates locked — The treaty rates remain unchanged at:
- Dividends — 10%
- Interest — 10%
- Royalties & FTS — 10%
- Capital gains taxation — No change; Article 13 continues to allocate taxing rights as before.
- Principal Purpose Test (PPT) — The Multilateral Instrument (MLI) PPT already applies and remains unaffected.
Impact on French Investors & Companies
- Certainty restored — French companies and funds investing in India will now have full predictability on withholding tax rates (no fear of future automatic reduction).
- No retrospective lower rates — France does not get the benefit of lower rates India gave to Lithuania, Colombia, etc.
- Still competitive — The 10% rate on royalties/FTS is still lower than the 15–20% rate applicable to many non-treaty countries.
Broader Significance
- Ends a long-standing bilateral irritant that had blocked several high-value investments and M&A transactions involving French entities.
- Clears the path for deeper economic cooperation in defence (Rafale follow-on orders), civil nuclear energy (Jaitapur project), civil aviation, AI and green hydrogen.
- Sets a precedent: India may seek similar MFN deletion or modification in other treaties where it has become commercially burdensome.
The amended protocol is a clear signal that India is willing to modernise and simplify its tax treaty network to make the country more attractive for long-term strategic FDI.
