Tax on royalties and franchise fees in India

Withholding tax

• Royalties and fees for technical services paid to non-residents are taxed at 20% of the gross amount plus surcharge and cess. The rate rose from 10% to 20% under the Finance Act 2023. The Indian franchisee withholds it when paying. Secondary · AZB & Partners on the 20% royalty rate, 2023-04-30
• The Vietnam–India tax treaty, signed on 7 September 1994, caps tax on royalties at 10% of the gross amount where the recipient is the beneficial owner. Its definition of royalties expressly includes payments for the use of a trade mark. Official · Vietnam–India tax treaty, Article 12 (VCCI WTO Center), 1994-09-07
• The India–Singapore treaty also caps royalties and fees for technical services at 10% of the gross amount for a beneficial owner. Official · ITAT Mumbai, MWH Consultants (India–Singapore treaty), 2020-02-07
• Treaty rates apply only if the non-resident provides a tax residency certificate from its home authority, plus the prescribed form where the certificate lacks required details. In practice this means an Indian tax registration. Secondary · AZB & Partners on the 20% royalty rate, 2023-04-30

GST

• Services imported from a supplier outside India are taxed under reverse charge: the Indian recipient, not the foreign franchisor, pays the integrated GST. Official · Notification 10/2017-Integrated Tax (Rate), GST Council, 2019-04-01

Planning points

1. Obtain a tax residency certificate every year and register for Indian tax before the first royalty payment.
2. Quote royalties gross or net of withholding tax explicitly in the agreement.
3. Remind the Indian partner that it accounts for GST on your fees under reverse charge.

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