I have given a few franchises and I get franchise fees at the time of setup and royalty on their sales.
1. What is the GST percentage on Franchise Fees? As transfer of intellectual property shows 12% but some people were saying its 18%. 2. What is the GST percentage on the royalty received? As transfer of intellectual property shows 12% but some people were saying its 18%. 3. When they pay the franchise fees or royalty to me do they need to deduct TDS? - There are many online platforms where I advertise my brand, and there they give a GST bill but I do not have to deduct any TDS, so in this case also as I am giving a GST bill do they need to deduct TDS? As the online advertising companies like Google India, Franchise India etc charge me the complete amount and no TDS is to be deducted. 4. When is ESIC and PF applicable for my staff?
27 July 2024
Here are the answers to your queries regarding GST and TDS for your business, especially concerning franchise fees, royalty, and other aspects:
### **1. GST on Franchise Fees**
**GST Rate on Franchise Fees:** - The GST rate on franchise fees is typically **18%**. This is because the supply of franchise services, including the transfer of intellectual property rights, falls under the category of taxable services at 18%.
**Clarification:** - **Intellectual Property Rights:** Even though transfer of intellectual property rights may be subject to 12% GST, franchise fees are generally covered under the broader service category, which attracts 18% GST.
### **2. GST on Royalty**
**GST Rate on Royalty:** - **Royalty Payments:** The royalty received from franchises or other entities is also subject to **18% GST**. This is in line with the general GST rate for services related to intellectual property rights and franchise agreements.
**Clarification:** - The GST rate on both franchise fees and royalties is 18%, aligning with the general GST framework for such services.
### **3. TDS Deduction on Franchise Fees and Royalty**
**TDS on Franchise Fees and Royalty:** - **TDS Applicability:** TDS (Tax Deducted at Source) under Section 194J of the Income Tax Act is applicable on payments for professional or technical services, including franchise fees and royalty. The rate for TDS on such payments is generally **10%** (or 40% if the payment is to a non-resident).
**Regarding your specific cases:** - **Franchise Fees and Royalty:** If franchisees or other entities making royalty payments are making payments to you, they are required to deduct TDS as per the applicable provisions of the Income Tax Act. - **Online Platforms:** For online advertising platforms (like Google India) or similar services, the TDS might not be applicable if you are billed with GST separately. However, if TDS is applicable, it would be as per the norms defined for such payments under the Income Tax Act.
**TDS and GST Relationship:** - **GST Bills:** Issuing a GST invoice does not exempt a payer from the obligation to deduct TDS if applicable. The applicability of TDS is based on the nature of the payment and not solely on the GST invoice.
### **4. ESIC and PF Applicability**
**Applicability of ESIC and PF:** - **ESIC (Employee State Insurance Corporation):** Applicable if the establishment has 10 or more employees, and the employee's salary is below ₹21,000 per month. ESIC is applicable to factories and certain other establishments.
- **PF (Provident Fund):** Applicable if the establishment has 20 or more employees. The PF scheme is mandatory for employees earning up to ₹15,000 per month.
**Clarification:** - The applicability of ESIC and PF depends on the number of employees and their salaries, as per the regulations set by the respective authorities.
### **5. SAC Code and GST Rate**
**SAC Code and GST Rate:** - **SAC Code for Franchise Services:** The relevant SAC code for franchise services would generally be **9983** for "Franchise Services." The GST rate for this is **18%**.
- **SAC Code for Other Services:** If you have services that fall under other categories, you need to select the appropriate SAC code and GST rate. For example, if you are providing services under **SAC 9973** (which is often associated with business services), the GST rate would generally be 18%.
**Clarification:** - **SAC 997336:** If you have mentioned that SAC 997336 attracts 18% GST, ensure that it is aligned with the specific service you are billing for. SAC codes help classify services for GST purposes, so ensure you use the correct SAC code for accurate GST billing.
### **Summary:**
- **GST on Franchise Fees and Royalty:** 18% - **TDS on Franchise Fees and Royalty:** Applicable, generally at 10% or as per Income Tax provisions - **ESIC and PF:** Based on employee count and salary - **SAC Code for Franchise Services:** Typically **9983** with an 18% GST rate
For precise application, ensure that you are complying with the latest guidelines and consult with a tax professional or legal advisor to address any specific nuances in your business.
CAclubindia
