French investors to pay capital gains on stock market investment, Pg15

Key Highlights:

• The CBDT has proposed amending the India-France Double Taxation Avoidance Convention (DTAC), which will end the tax advantage for France-based portfolio investors in Indian capital markets.
• France-based FPIs with less than a 10% stake in an Indian company currently pay no capital gains tax under the 1992 bilateral tax convention.
• As of January 2026, France-based FPIs owned $21 billion worth of equity investments in India.
• The amendments reduce the dividend tax on French companies holding at least 10% in an Indian entity to 5% from 10%.

Detailed Insights:

• The amendment to the DTAC could lead to significant revenue gains for India, especially since many FPIs began investing in Indian markets from France after treaty modifications with Mauritius and Singapore in 2017.
• Investments are routed through P-notes issued by FPIs registered with SEBI, and many France-based FPIs also invest directly in India.
• For shareholdings of under 10% in Indian firms, the dividend tax will increase from 10% to 15%.
• This change aligns the tax treatment of French investors with that of investors from other countries, preventing tax avoidance strategies that exploit treaty benefits.

Key Concepts Involved:

• FPI (Foreign Portfolio Investor): An investor who invests in the financial assets of a country.
• CBDT (Central Board of Direct Taxes): A government agency dealing with direct tax laws.
• DTAC (Double Taxation Avoidance Convention): An agreement between two countries to avoid double taxation of income.