After India tightened the tax treaties with Mauritius and Singapore in 2017, France emerged as a major source of foreign portfolio inflows into India, particularly through P-Notes
The recent amendment to the India-France Double Taxation Avoidance Convention will make India a less attractive destination for equity investors especially through participatory notes (P-Notes) from France even while brings much-needed clarity for long-term investors.
France-based foreign portfolio investors investments in Indian shares accounted for $21 billion in inflows as of January. Bilateral trade between India and France stood at $15 billion last year, said market sources.
Besides the rights to tax capital gains, the revised treaty has halved the withholding tax on dividends to 5 per cent for French companies holding more than 10 per cent in an Indian entity but raised the tax to 15 per cent for shareholders with less than 10 per cent stake.
Investment channel
P-Notes are offshore financial instruments issued by foreign portfolio investors (FPIs) registered with SEBI to overseas investors, who want to invest in Indian securities without registering directly with SEBI. It entails minimum paperwork and ensures anonymity.
VK Vijayakumar, Chief Investment Strategist, Geojit Investments said the changes to the DTAC (Double Taxation Avoidance Treaty) is negative for portfolio inflows from France. After India tightened the tax treaties with Mauritius and Singapore in 2017, France emerged as a major source of foreign portfolio inflows into India, particularly through P-Notes.
Under the new India-France agreement, the MFN clause has been removed and capital gains tax can be levied on French portfolio investments, he said.
However, the long-term trend of French portfolio investments will be determined by the returns investment in India can generate, he said.
Ajay Garg, Director & CEO, SMC Global Securities, said the amendment will create some friction for French institutional investors as selling of Indian shares by them will now face Indian capital gains tax, directly eroding returns for PE, VC and FPI structures domiciled in France.
French asset managers and portfolio investors who actively trade Indian equities will feel the impact most, as the higher tax drag on exits affects return calculations, he said.
Mihir Tanna, Associate Director (Direct Tax), SK Patodia & Associates LLP (Chartered Accountants), said removing the MFN is likely to reduce litigation and implementation will be completed through a protocol.
While these amendment aim to bring certainty on taxation, he said the recent litigation regarding taxing rights on derivatives where the underlying asset is equity, taxing rights on equity-based mutual funds and the residential status of the ultimate beneficial owner requires more clarity to give certainty to investors.
Published on February 24, 2026