Why you cannot claim the 5% MFN dividend rate
The clause fails on two independent grounds, either of which is fatal: India never notified the 5% rate, and the countries whose rate you would be borrowing were not OECD members when they signed.
The clause does not sit in the treaty's dividend article. It sits in the protocol, and it promises that if India later gives a lower dividend rate to another OECD country, the earlier partner gets the same rate. The Netherlands, France and Switzerland each published a decree or bulletin saying this had happened. Taxpayers filed on that basis for years, and the Supreme Court rejected it.
1. India has to notify the rate. A protocol term cannot alter Indian tax law by itself. It becomes enforceable here only once the government issues a notification under Section 90(1), which becomes Section 159 from FY 2026-27. India does issue these, and that is the point: a 1999 notification is what set the Netherlands dividend rate at 10% in the first place. What India has never issued is one importing the 5% rate from the Slovenia, Lithuania or Colombia treaties. CBDT said exactly that in Circular 3 of 2022, dated 3 February 2022, and the court agreed with it.
2. OECD membership is tested on the signing date. The country whose rate you are borrowing had to be an OECD member when it signed its treaty with India, not later. Slovenia, Lithuania and Colombia signed first and joined the OECD afterwards, so there was never a rate to import.
The other country's decree does not help. It changes that country's law, not India's.
Two of the three decrees never gave an individual 5% anyway
If you are Dutch or French, the decree you were pointed at did not give you 5%. Both reserved 5% for a company directly holding at least 10% of the capital of the Indian company paying the dividend, and both kept 10% for portfolio dividends, which is what an individual with a few thousand shares owns. The Dutch decree said so in terms.
That follows from the rates being borrowed. Under the India-Slovenia and India-Lithuania treaties, 5% goes to a company holding at least 10% of the capital, and everyone else falls into the "in all other cases" box at 15%.
Switzerland is the exception, and it is worth being straight about that. Its statement did extend 5% to portfolio dividends, because the treaty it leaned on, India-Colombia, sets a flat 5% with no shareholding test. A Swiss resident really was claiming something. Nestle SA closes it anyway, because the notification is missing either way.
France has now written the split into the treaty itself. On 23 February 2026 India and France signed a protocol that deletes the MFN clause outright and replaces the flat 10% dividend rate with a split rate: 5% for a shareholder holding at least 10% of the capital, and 15% in all other cases. It is signed but not yet in effect, pending both sides completing their internal procedures. A retail shareholder sits in the 15% box, so when it takes effect a French-resident individual goes from 10% to 15%.
A worked example
Anjali, an NRI in Amsterdam, received 8 lakh rupees of Indian dividends and claimed 5%, paying 40,000 rupees instead of the 80,000 the treaty rate asks for.
Two separate things are wrong with that. The clause does not operate without a notification, so she owes the 40,000 difference plus interest. And the Dutch decree she was relying on never gave her 5% to begin with: it kept portfolio dividends at 10% and reserved 5% for a company holding at least 10% of the payer.
She was claiming a rate that neither country's own rules gave her.
If you already claimed 5%, fix it rather than wait
File the correction now. The shortfall to the 10% base rate plus interest is due either way, and the Supreme Court dismissed the review petition against Nestle SA on 6 August 2024 and the curative petition on 16 September 2025, so no pending case can revive the position.
What that means, by situation:
| Where you are | What to do |
|---|---|
| Return filed with a 5% claim | The shortfall to the 10% base rate plus interest is due. An updated return under Section 139(8A) is open for 48 months from the end of the assessment year, at additional tax of 25% to 70% depending on how late it is |
| Refund claim sitting with the assessing officer | Expect denial. Appealing on the MFN point alone is spending money on a settled question |
| Notice already received proposing to disallow | Concede the MFN limb, and protect any part of the claim that does not depend on it |
| Registrar deducted 10% and you were going to ask for 5% | Do not. 10% is the correct rate |
Correcting it yourself costs the additional tax under Section 140B. Waiting for the department to find it can cost a penalty under Section 270A, 50% of the tax where the income is treated as under-reported and 200% where it is treated as misreported.
The Swiss reaction runs the other way
If you hold Swiss shares as well as Indian ones, the ruling moved that side too, and in the opposite direction. On 11 December 2024 the Swiss authorities announced that from 1 January 2025 they would stop applying the MFN clause unilaterally, so Swiss withholding on dividends paid to Indian residents went back up from 5% to 10%.
That one hits an Indian resident who owns Swiss shares, not an NRI who owns Indian shares. If you are both, both sides moved, and both landed on 10%.
What actually cuts your Indian dividend withholding
The base treaty rate does, and the gap there is far bigger than the one you were chasing. A registrar deducts 20% plus surcharge and cess under Section 195 (Section 393 from FY 2026-27) unless it holds your tax residency certificate, Form 10F, which becomes Form 41 from FY 2026-27, and a beneficial-ownership declaration before the record date. Getting those in on time takes the rate to 10%, roughly half.
So the recoverable money is between 20% plus surcharge and 10%, not between 10% and 5%. See getting the treaty rate on your Indian dividends for the record-date mechanics.