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New Tax Clarity: India–France Protocol Grants Source Country Rights on Share Sale Gains
India and France have amended the DTAC protocol to avoid double taxation. This change will give the right to tax capital gains to the country of origin, providing convenience to investors.
In order to avoid duplication of taxes, India and France have entered into a protocol for amending the Double Taxation Avoidance Convention. Ravi Agarwal, Chairman of the Central Board of Direct Taxes, represented India, while Thierry Mathieu, Ambassador of France, represented France. Both countries have expressed their intention to amend their tax laws.
The DTAC was signed between the two countries in 1992. The DTAC is signed with the objective of ensuring that income is not taxed differently in both countries. This is helpful in investment management.
The main changes that will be made are with regard to tax laws concerning capital gains. Currently, the country where the company is located will have the right to tax capital gains on the sale of its shares. Previously, there was no clarity on this issue. This will make it easier for foreign investors to invest, and the tax structure will be clear.
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As part of the amendment, the Most Favored Nation (MFN) clause between the two countries has been updated. A single rate of 10 percent has now been set on dividends. If an investor has a 10 percent shareholding, a concessional rate of 5 percent may apply.
The amendment has updated provisions related to information exchange in accordance with international standards. This will improve the exchange of tax-related information between the two countries and help prevent tax evasion. This amendment will primarily benefit large investors and companies, but it will also create a favorable investment environment in the future.
