Franchise & Licensing Advisory

No. India does not have a standalone franchise statute, a mandatory pre-sale disclosure requirement, or a dedicated franchise registration authority — unlike the United States (FTC Franchise Rule) or a number of other jurisdictions. Franchise relationships in India are governed by general contract law under the Indian Contract Act 1872, trademark licensing provisions under the Trade Marks Act 1999, competition-law principles under the Competition Act 2002 (particularly around exclusivity and territorial restrictions), and consumer protection principles where relevant. This means the franchise agreement itself — not a statutory floor of protections — is the primary source of both parties' rights.

There is no fixed statutory royalty rate. Market practice for franchised businesses in India — particularly food and beverage, retail, education, and wellness — commonly ranges from approximately 3% to 8% of gross outlet revenue, with wide variation depending on brand strength, the level of ongoing franchisor support, marketing contribution requirements, and sector. Some agreements use a flat monthly or annual fee instead of a percentage-of-revenue royalty, particularly for smaller or newer brands. The right rate depends on your specific unit economics — a royalty that looks reasonable on paper can make the franchisee's outlet unviable once rent, staffing, and input costs are factored in.

No, franchise agreements as such are not registered with any government authority in India — there is no franchise-specific registration or disclosure filing requirement. However, two related registrations are relevant: the trademark itself must be registered with the Trade Marks Registry (ipindia.gov.in) for the underlying IP right to be enforceable, and the licence/franchise arrangement can optionally be recorded as a 'registered user' entry against that trademark under Section 49 of the Trade Marks Act, which strengthens the licensor's quality-control position and the licensee's standing. Stamp duty on the agreement itself is payable under the applicable state Stamp Act, which does function as a form of registration for stamp/evidentiary purposes.

Franchise fees and royalty payments for the right to use a trademark or other intellectual property are treated as a taxable supply of service under the CGST Act 2017. GST rates were rationalised with effect from September 2025 into a simplified 5%/18%/40% slab structure, replacing the earlier four-slab 5%/12%/18%/28% framework. Licensing and franchise-fee services generally fall under the standard applicable rate for licensing/IP-related services under the current structure. Because rate classifications for specific service codes are periodically clarified by notification, PNPC confirms the exact applicable rate against the current GST rate schedule at the time each agreement or invoicing cycle is finalised, rather than relying on a rate that may have since changed.

Yes. Domestic royalty payments — including franchise royalty paid to an India-resident franchisor — are subject to TDS under Section 194J of the Income-tax Act, which covers royalty and fees for technical services. The franchisee (payer) is responsible for deducting TDS at the time of credit or payment, whichever is earlier, and depositing it with the government within the prescribed timeline. Threshold and rate details under Section 194J were revised in Budget 2025 (with the applicable annual threshold set at ₹50,000), so PNPC confirms the current threshold and rate applicable to the specific payment category before setting up the TDS mechanics for any franchise arrangement.

Cross-border royalty payments made by an Indian franchisee to an overseas franchisor are subject to withholding tax under Section 195 of the Income-tax Act, at the rate prescribed under the Act or the beneficial rate under the applicable Double Taxation Avoidance Agreement (DTAA) — whichever is more favourable to the payee, provided the overseas party furnishes a valid Tax Residency Certificate (TRC) and Form 10F. The India-UAE DTAA provides a specific concessional rate for royalty and fees for technical services, subject to conditions. Form 15CA (and Form 15CB, a CA certificate) must be filed for the remittance. Correctly classifying the payment — pure royalty versus fees for technical services versus reimbursement of costs — materially affects the applicable rate.

You can enter into a franchise or licensing agreement based on a pending trademark application, and the ™ symbol can be used from the filing date. However, this carries meaningful risk: a pending application can still be refused (First Examination Report objections) or opposed by a third party after publication, and until registration is granted, your enforcement remedies are weaker (limited largely to common-law passing-off protection rather than statutory infringement rights). We generally recommend franchising only once the trademark is registered, or at minimum, proceeding cautiously with clear risk disclosure to franchisees if the application is still pending.

A registered user is a licensee whose permitted use of a registered trademark is formally recorded with the Trade Marks Registry under Section 49 of the Trade Marks Act 1999, via an application typically made jointly by the licensor and licensee. Recordal is not mandatory for the licence itself to be valid as a contract between the parties, but it provides several practical benefits: it creates a public record of the licensing relationship, it can strengthen the licensor's position in demonstrating exercised quality control (relevant to defending the mark's validity), and it clarifies the licensee's standing to take certain enforcement actions. For any franchise arrangement expected to run for several years or involve multiple outlets, PNPC generally recommends registered-user recordal as good practice, though it should be assessed case by case.

This is a trademark infringement (if the mark is registered) and a breach of contract simultaneously. The franchise agreement should include explicit de-identification obligations — requiring the former franchisee to remove all branding, signage, and marked materials within a specified period post-termination — and a post-termination non-compete clause (enforceable in India only to a reasonable extent, both in duration and geography, per Section 27 of the Indian Contract Act, which generally voids unreasonable restraints of trade). Remedies available include an injunction, damages, and — if the mark is registered — a trademark infringement claim under the Trade Marks Act, which carries stronger and faster remedies than relying on breach-of-contract claims alone.

Partially, and with important limits. Under Section 27 of the Indian Contract Act 1872, any agreement that restrains a person from carrying on a lawful trade or business is void, subject to narrow statutory exceptions (such as a seller of goodwill agreeing not to compete). Indian courts have generally upheld non-compete clauses that operate during the term of a franchise agreement (as reasonable protection of the franchisor's business interest during the relationship), but have been far more reluctant to enforce post-termination non-compete restrictions, treating them with the same skepticism applied to employment non-competes. Post-termination restrictions on using the franchisor's confidential information, trade secrets, and trademark, however, are enforceable on separate legal grounds (confidentiality and IP infringement) even where a broader non-compete might not be.

A distributorship or dealership agreement grants a party the right to buy and resell products under the manufacturer's trademark, typically without transferring an operating system, training, or ongoing brand-standard supervision — the dealer generally operates under its own business identity, selling branded products. A franchise agreement goes further: the franchisee typically operates under the franchisor's brand identity itself (the outlet looks and feels like the franchisor's own), follows a prescribed operating system and manuals, and pays an ongoing royalty tied to that full brand and system licence — not just a product margin. Getting this classification wrong at the drafting stage can lead to disputes over which party bears which obligations, and can also affect the GST and tax characterisation of the payments involved.

Yes. A foreign entity or NRI can invest as a franchisee (through equity in the Indian franchisee entity) or act as a master franchisee bringing an international brand into India, subject to the sector's applicable FDI policy under FEMA — most retail, F&B, and service-sector franchising falls under the automatic route, though certain retail formats (particularly multi-brand retail trading) carry specific FDI conditions that should be checked for the exact business model. Where the franchisor is the overseas party licensing an Indian entity, the royalty payment structure and withholding tax treatment (Section 195 plus applicable DTAA) becomes the central compliance point, rather than an FDI approval issue.

We model the actual unit economics of a representative outlet — revenue, cost of goods/services, rent, staffing, marketing spend, and other fixed costs — and test the proposed royalty rate against what remains for the franchisee as a viable return. We also review comparable rates in your specific sector (F&B, retail, education, wellness, and services each have different norms) and factor in the level of ongoing support, training, and marketing investment the franchisor is committing to provide, since a higher royalty is more defensible when it is matched by real, ongoing franchisor value delivery rather than a one-time brand licence.

Transfer pricing rules under Section 92 of the Income-tax Act require that transactions between 'associated enterprises' — including a franchisor and franchisee that are related parties (common ownership or control, including certain cross-border group structures) — be priced at arm's length, as if the parties were unrelated. If a group company licenses its trademark to a related franchisee (for example, an India entity licensing to its own UAE subsidiary, or vice versa) at a royalty rate that is not defensible as arm's length, the tax authority can make a transfer-pricing adjustment, adding back income and levying interest and penalty. This applies specifically to cross-border related-party transactions and, under specified domestic transaction rules, to certain large domestic related-party arrangements as well.

Yes, franchise agreements commonly grant exclusive or protected territories to franchisees. However, exclusivity and territorial restrictions can, in certain circumstances, raise concerns under the Competition Act 2002 — particularly if the arrangement amounts to an anti-competitive vertical restraint that appreciably harms competition in the relevant market (for example, resale price maintenance combined with rigid territorial exclusivity across a dominant brand). Most ordinary franchise territorial exclusivity for small and mid-sized brands does not raise Competition Act concerns, but the drafting should avoid provisions that fix resale prices rigidly or foreclose competitors unreasonably, particularly as the franchise network and brand's market position scale up.

A master franchise agreement grants a party (the master franchisee) the right to sub-franchise the brand within a defined territory — typically a country or region — rather than the franchisor directly managing individual franchisees in that territory. This is the standard structure for bringing an international brand into India, or taking an Indian brand into the UAE or another overseas market, because it lets the brand owner delegate local market knowledge, regulatory navigation, and day-to-day franchisee relationship management to a party with an established local presence, in exchange for a territory fee and a share of ongoing royalty. It is generally the right structure when the franchisor lacks operational presence or regulatory familiarity in the target market.

For most engagements, yes — franchise and licensing work sits across both tax/compliance (where a CA firm's expertise is central) and contract drafting/dispute strategy (where a qualified advocate's input strengthens the agreement, particularly around dispute-resolution clauses, non-compete enforceability, and litigation/arbitration strategy). PNPC coordinates franchise and licensing structuring including royalty benchmarking, GST and TDS treatment, FEMA/DTAA structuring for cross-border arrangements, and trademark registered-user recordal, and works alongside legal counsel for the underlying agreement drafting and any contentious dispute matters, so the tax and legal workstreams are aligned rather than handled by two disconnected advisors.

Stamp duty on franchise and licensing agreements is governed by the Stamp Act applicable in the state where the agreement is executed (or, in some states, where the property/business is situated), and rates vary meaningfully by state — some states specifically address licence agreements, while in others a franchise agreement may be stamped under a general 'agreement' or 'instrument' category. There is no uniform pan-India stamp duty rate for franchise agreements. Under-stamping can affect the agreement's admissibility as evidence in court proceedings if a dispute arises, so PNPC confirms the applicable state stamp duty treatment before execution rather than after a dispute exposes the gap.

Tax efficiency in franchise/licensing structuring should never come from aggressive positions that create audit risk — it comes from getting the basics right: ensuring the trademark is owned by the correct entity so royalty income and deductions land where they are legally supposed to, applying the correct GST and TDS treatment consistently so no interest or penalty accrues, using DTAA benefits properly (with valid TRC and Form 10F documentation) for cross-border payments rather than under- or over-withholding, and benchmarking related-party royalty rates defensibly under transfer-pricing principles so no future adjustment arises. This disciplined, documented approach is what actually protects the arrangement's tax position over its full multi-year life.

This depends entirely on the assignment clause in the original franchise agreement. Most well-drafted franchise agreements are assignable by the franchisor (since the franchisor's identity matters less to the ongoing relationship than the brand and system itself) but restrict assignment by the franchisee without the franchisor's consent (since franchisee identity, quality, and operational capability matter significantly to brand consistency). If the franchisor's business is sold via a share sale, the franchise agreements typically continue unaffected since the contracting entity is unchanged. If it is an asset/brand sale, the franchise agreements and the underlying trademark should be formally assigned to the acquiring entity, and franchisees should be notified per the agreement's assignment provisions.

No. India has no statutory equivalent of the US FTC Franchise Rule's mandatory Franchise Disclosure Document. Franchisors are not legally required to provide prospective franchisees with standardised pre-sale financial disclosures, litigation history, or outlet performance data. However, PNPC recommends that franchisors voluntarily prepare a disclosure package — covering financial performance representations (made responsibly, with a clear basis, since misleading financial representations can expose the franchisor to misrepresentation or fraud claims under the Indian Contract Act and Consumer Protection Act 2019), existing franchisee references, and full agreement terms — because it reduces future disputes and strengthens the franchisor's credibility and legal position.

Yes. A pure trademark or brand licence — for example, licensing your brand name and logo for use on merchandise, packaging, or a co-branded product — does not require the operational system, training, and ongoing supervision structure of a full franchise. This is a simpler licensing agreement covering the scope of licensed use, quality-control rights (to protect the mark's distinctiveness and prevent it being used in a way that damages the brand), royalty or lump-sum fee structure, term, and territory. It is governed by the same Trade Marks Act licensing provisions but is materially less complex to draft and manage than a full franchise relationship.

For any related-party or cross-border royalty arrangement, maintain: a benchmarking analysis comparing your royalty rate to comparable unrelated third-party arrangements in the same or similar industry, the underlying unit-economics model used to set the rate, board or management approval records showing the rate was set through a considered process rather than arbitrarily, and — for transactions crossing the specified thresholds — formal transfer-pricing documentation and an accountant's report (Form 3CEB) as required under Section 92E of the Income-tax Act. For arm's-length third-party franchise arrangements (unrelated parties negotiating at market terms), the negotiated agreement itself, supported by the fact that the counterparty was genuinely unrelated and negotiated independently, is generally the strongest evidence of arm's-length pricing.

We review the franchisor's proposed agreement clause by clause — royalty and fee mechanics, territory and exclusivity terms, franchisor's support and training commitments, termination and renewal conditions, non-compete scope, and any financial performance representations made during the sales process. We model the unit economics using your actual projected costs (rent, staffing, local market pricing) against the franchisor's revenue assumptions to test whether the specific royalty and fee structure leaves a viable return in your market, since franchisor projections are not always calibrated to every local market. We also confirm the franchisor's trademark is validly registered and actually owned by the contracting entity before you commit any franchise fee.

The upfront (one-time) franchise fee and the ongoing royalty are generally both treated as taxable business income in the hands of the franchisor, though their character can differ slightly — an upfront fee for granting the right to use the system may be treated as royalty income under Section 9(1)(vi) or as business income depending on the specific facts and how the agreement characterises the payment, while the ongoing royalty tied to revenue is more straightforwardly characterised as royalty income. For the franchisee, both the franchise fee (if it represents an enduring benefit) and ongoing royalty are typically deductible business expenditure, though a large upfront fee conferring a long-term benefit may, in some fact patterns, be treated as capital in nature and require amortisation rather than immediate deduction — this characterisation should be assessed for each specific agreement rather than assumed.

Yes — this is one of our most common franchise/licensing engagements. We conduct a health-check review of existing agreements: confirming GST classification and rate applied to historical royalty invoices, checking whether TDS was correctly deducted (domestic Section 194J or cross-border Section 195 plus DTAA) on every royalty payment made or received, verifying the trademark is registered to the correct contracting entity, and identifying any related-party transfer-pricing exposure that was never benchmarked. Where gaps are found, we advise on regularisation — including voluntary disclosure or correction filings where appropriate — before an assessment or audit surfaces the issue instead.

Fees depend on the complexity and scope of the engagement — a straightforward single franchise agreement review and royalty/GST/TDS structuring for a domestic arrangement costs meaningfully less than a cross-border master franchise structuring involving DTAA analysis, FEMA remittance structuring, and coordination across our India and Dubai offices. We provide a written, fixed-fee scope after an initial consultation to understand your specific franchise model, counterparties, and jurisdictions involved, before any engagement begins.

A franchise brokerage typically earns its fee by closing franchise sales — its incentive is volume of signed franchisees, not necessarily the long-term tax and compliance soundness of each agreement. A generic legal document service produces a template agreement without reviewing your trademark ownership, modelling your specific unit economics, or structuring the GST, TDS, and cross-border tax treatment correctly. PNPC has no incentive to push volume — our engagement is to get the structure, tax treatment, and IP protection right for the specific relationship, whether that means recommending you slow down and register your trademark first, renegotiate an unrealistic royalty rate, or restructure a cross-border arrangement that would otherwise create withholding tax exposure.

Yes, provided the franchisee is GST-registered and the franchise/licence is used in the course of furthering a taxable business. The GST charged by the franchisor on the franchise fee and ongoing royalty is available as input tax credit to the franchisee, subject to the standard ITC conditions under the CGST Act 2017 — a valid tax invoice, the supply being actually received, the franchisor having filed the corresponding GST return, and payment made within the prescribed period. A common practical issue arises when the franchisor's GST registration or invoicing is inconsistent across states, which can create ITC mismatches for franchisees operating in multiple locations.

If a franchisee entity is admitted into Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code 2016, a moratorium under Section 14 of the IBC generally suspends the institution or continuation of suits and the enforcement of most claims against the corporate debtor, which can affect the franchisor's ability to immediately terminate the agreement or recover past royalty dues through ordinary legal action — franchisors typically need to file a claim with the Resolution Professional instead. Franchise agreements should include clear provisions addressing insolvency as a termination trigger (subject to IBC overrides) and should clarify treatment of the licensed trademark and any franchisor-owned equipment or signage during the moratorium period.

Yes, fundamentally different. In a franchise, the franchisor licenses its brand and system for a fee/royalty but does not typically share in the franchisee's equity, profits, or losses beyond the agreed royalty — the franchisee bears the outlet's business risk independently. In a joint venture, the parties typically hold equity in a shared entity and share profits, losses, and control according to their shareholding and the JV agreement. A JV is more appropriate when the counterparty is bringing significant capital, local market access, or complementary capability that justifies shared ownership and control, rather than simply operating under a licensed brand for a fee. Some cross-border market entries use a hybrid — a JV entity that itself holds the master franchise rights.

The core legal and tax framework — trademark licensing under the Trade Marks Act, GST on the franchise/royalty fee, TDS under Section 194J or Section 195 for cross-border arrangements — applies the same way regardless of whether the franchised or licensed business operates from a physical outlet or entirely online. What differs practically is territory definition (geographic exclusivity is harder to define meaningfully for a digital-only service available nationwide or globally), the nature of the 'operating system' being licensed (software, app access, and digital marketing playbooks rather than physical outlet standards), and GST place-of-supply analysis, which can be more complex for digital services than for a fixed physical outlet.

Yes — PNPC recommends every franchise and licensing agreement include a clear dispute-resolution clause, given that India has no specialised franchise tribunal and ordinary civil litigation can be slow. Arbitration under the Arbitration and Conciliation Act 1996 is commonly preferred for franchise disputes because it is generally faster, more confidential, and allows the parties to select an arbitrator with relevant commercial experience. The clause should specify the seat and venue of arbitration, the number of arbitrators, the governing law, and — for cross-border arrangements — whether an institutional framework (such as ICC, SIAC, or a domestic institution) applies, since this affects enforceability of the eventual award, particularly for cross-border counterparties.

There is no statutory minimum notice period prescribed by law for franchise non-renewal or termination in India — this is entirely a matter of contract. Well-drafted agreements typically specify a notice period (commonly 90 to 180 days before the term's natural expiry) for either party to indicate non-renewal, and separate, shorter cure-period provisions for termination due to breach (commonly 15 to 30 days to remedy a curable default before termination rights arise). Because there is no statutory floor, a franchisee relying on an agreement silent on notice periods has materially weaker protection against abrupt non-renewal than in jurisdictions with mandatory franchise notice requirements.

While insurance itself is arranged through a licensed insurer or broker, PNPC reviews and advises on the insurance obligations typically written into franchise agreements — commonly public liability insurance, property/fit-out insurance, and sometimes business interruption cover, with the franchisor named as an additional insured or loss payee in some structures. We assess whether the insurance requirements in a proposed agreement are proportionate to the actual outlet risk and flag gaps (for example, agreements requiring insurance types disproportionate to a small-format outlet, or agreements silent on insurance entirely, leaving the franchisor exposed if an incident at a franchisee's outlet is associated with the brand).

Generally, no — franchisee employees are employed by the franchisee entity, not the franchisor, and ordinary employment law liability (wages, PF, ESI, termination) rests with the franchisee as the employer. However, courts in some jurisdictions have found 'joint employer' liability where the franchisor exercises an unusually high degree of day-to-day operational control over franchisee staffing and employment decisions (beyond standard brand-standard and training requirements) — this is a developing and fact-specific area rather than a settled bright-line rule in India. Franchise agreements should clearly state that franchisee employees are solely the franchisee's responsibility and that the franchisor's role is limited to brand-standard training, not employment control.