Tax treatment of franchise fees in India.

<p>Tax treatment of franchise fees in India.</p> <p>Where smart works are more effective than hard work, just as smart investments reward more than regular investments especially when you are the business owner or a franchise seeker. Because business strategy, marketing modules, effective sales and expansion of business are all steps to franchise your business to make your business a successful brand through the franchise. Running a franchise business may appear lucrative at first glance, but there is a lot that goes into making it a success. In general, franchising entails a business owner or franchisor leasing the right to operate a business or sell products or services under the franchisor’s name to a third party or franchise in exchange for a fee.&nbsp;</p> <p>In India, the franchise industry is still in its infancy, and there is no explicit legislation governing it. As a result, it clashes with a slew of industry-specific and commercial rules across the country. Franchising is governed by a number of acts, rules, and regulations. When a franchisor receives royalties, franchise, or service fees, the tax must be paid under the Income Tax Act, regardless of whether the franchisor is an Indian or a foreigner. According to Section 9 of the Income Tax Act, some income, such as interest and royalties, is deemed to arise and accrue in India in specific situations. Profits from a franchised firm are subject to a tax rate of up to 30%. Technical service fees are subject to a withholding tax of 10%, which is currently in effect. However, any tax treaty relief that may be provided is subject to it.</p> <p>Franchise fees and royalty fees are the two types of payments that are often made in a franchise agreement. The franchise costs may be paid in one big sum at the time of the contract’s signing, while the royalty payments may be paid on a monthly basis. Parties’ agreements must be examined along the lines outlined above to determine whether they are in substance a franchise agreement or a licensing arrangement. Both headings in 9973 and 9936 refer to licensing services that are provided under the terms of a license agreement. According to Serial No. 21 of Notification No.11/2017- Central Tax (Rate) dated 28.06.2017, services done under a franchise agreement are classified as Heading 9983-Other professional, technical, or business services. According to the Annexure: Scheme of Classification of Services, the Franchise Fee and Royalty are covered under Service Code (Tariff) No. 998396 as “Trademarks and franchises.” Franchise fees and royalties paid under a franchise agreement are taxed at 18% under Chapter Heading 9983, “Other professional, technical, and business services,” and Service Code (Tariff) 998396, “Trademarks and franchises.”</p> <p>Under Indian tax law, a franchise agreement (Agreement) can be considered rent for the purposes of tax deduction at source (TDS) (ITL). The HC decided that the parties’ principal purpose when regarded as a whole, was to keep the firm going and share profits, rather than to rent out the premises and infrastructure on their own. As a result, the donations are not deemed rent and so, are not subject to TDS. When the amount or aggregate of such amounts credited or paid to a person exceeds Rs. 30,000 in the fiscal year 2021-22, Section 194J necessitates the deduction of 10% tax at source from payments credited or paid as fees for professional services. For the education center, the franchisees were given a limited licence to use the Taxpayer’s trademark and trade name. The license was granted for a certain zone and included permission to operate the teaching centre in connection with the Taxpayer’s marketing courses.&nbsp;</p> <p>Franchises, on the other hand, are akin to opening a new branch of an existing company where the franchisee will conduct business. As a result, supplies made by a franchisor to a franchisee under an existing franchise agreement will be taxable as a supply of goods or services under section 7 of the CGST Act. Franchisees can claim an input tax credit on the delivery of such infrastructure/equipment because it is a taxable supply. The arrangement was set up like a partnership, with each person investing their own funds and splitting the earnings. Unless there was a colourable device in the agreement, the parties’ intent was to be determined from the agreement.&nbsp;</p> <p>Though Indian law has a number of sections regarding franchise business according to relevant agreement requirements, it is not that much complicated if you hired some expert franchise consultancy. The franchise experts will make it easy to process franchises for your business firm and your valuable time will be saved so that you can concentrate on your business expansion in the competitive market. Franchise Insider is a franchise industry super-specialist, and you must not allow your business to be constrained and get the expert help. What do you think?&nbsp;</p>