Franchise Agreement Drafting
A franchise agreement lets another business run under your brand and system in return for fees and royalty. We draft it for your review, set the territory and the trademark licence, and plan GST at 18% and TDS on royalty before the first invoice goes out.
What it is
A franchise agreement is a contract between a brand owner (the franchisor) and an operator (the franchisee). The franchisee gets the right to use the brand and its way of working in a set territory. In return, it pays an upfront franchise fee and a running royalty, and agrees to follow the brand’s standards.
India has no separate franchise law. The Indian Contract Act, 1872 governs the agreement, and the Trade Marks Act, 1999 governs the brand licence inside it. Section 2(1)(r) treats use of a registered mark by a registered user, or by another person with the owner’s written consent, as “permitted use”. Here is the catch: a franchisee can be recorded as a registered user only if the mark is registered. The fees themselves are a taxable supply under GST.
Who it applies to
You built a brand worth copying
A café, salon, coaching centre or retail format with a working outlet and a name people will pay for.
You are buying into a brand
Say a Gurugram professional is putting savings into a food-court outlet and has been handed the brand’s standard draft. We review it from your side, starting with territory, lock-in and the true cost of royalty.
You hold a master licence
You hold a state or city master licence and sign sub-franchisees under it. Your sub-franchise terms cannot grant more than your own licence gives you.
Why it matters
Keep one weak outlet from hurting the brand
Quality rules and a clean termination route stop one weak outlet from hurting the rest.
Fix the money terms before opening day
Fee, royalty and taxes are fixed in writing, so nobody argues over the base each month.
Draw the territory on a map
A map or pin-code list avoids two outlets fighting for the same customers.
Documents required
From the franchisor
- Trademark registration certificate or application number
- Operations manual and brand guidelines
- Fee structure, royalty and marketing fund terms
- GSTIN and PAN
From the franchisee
- Entity proof: company, LLP, firm or proprietor
- PAN, GSTIN and address of the outlet
- Lease or ownership papers for the premises
For signing
- Board resolution or authority letter for each signatory
- E-stamp paper for the state where the agreement is signed
- Territory map or pin-code list
Key clauses at a glance
| Clause | What it does | What to watch |
|---|---|---|
| Grant and territory | Gives the right to operate in a defined area, exclusive or not | Online and delivery sales inside the territory |
| Franchise fee | One-time fee on signing | Refundable or not if the outlet never opens |
| Royalty | A percentage of sales or a fixed monthly sum | Define “sales”: gross or net of GST, discounts and returns |
| Trademark licence | Permits use of the name and logo on agreed terms | Registered user recordal in Form TM-U |
| Training and manual | Transfers the system and keeps it confidential | Manual updates bind the franchisee only if the agreement says so |
| Supply and quality | Approved vendors, audits and mystery checks | Pricing of goods the franchisor supplies |
| Term and renewal | Fixed term, renewal conditions and fee | Lock-in matched to the fit-out cost |
| Non-compete | No rival business during the term | Post-term restraints are void under Section 27 |
| Termination and exit | Grounds, cure period, de-branding and stock buy-back | Return of manuals and data |
How it works
Confirm who owns the brand
We check that the mark is registered, or applied for, in the right class and in the franchisor’s own name. If it is not, we start trademark registration before any licence is signed.
Draft the agreement for your review
We draft the franchise agreement and its schedules for your review and revise them after the other side’s comments. Each party is free to take independent legal advice. Any legal notice or court filing under it must be signed by a practising advocate.
Map GST and TDS on every fee
In practice, most disputes start with money. We set out who invoices what, the GST on each stream and the TDS the franchisee deducts on royalty.
Stamp, sign and record the licence
We arrange e-stamp paper before signing; in Haryana it is generated against a GRN on the e-GRAS portal. After signing, we file Form TM-U to record the franchisee as a registered user.
Timelines
Stamp before or at signing
Section 17 of the Indian Stamp Act, 1899 requires every instrument chargeable with duty and executed in India to be stamped before or at the time of execution.
Deduct TDS on royalty
Under Section 393 of the Income-tax Act, 2025, royalty paid to a resident carries TDS at 10% once payments cross ₹50,000 in the year.
Pay GST every return period
The franchisor charges GST on each fee and royalty invoice. If the franchisor is abroad, the Indian franchisee pays it under reverse charge.
What happens if the brand licence is weak
The franchisee cannot sue copycats
Section 53 of the Trade Marks Act gives no right to sue for infringement to a user who is not registered. Only a registered user can, under Section 52.
An unregistered mark cannot be recorded
Section 48(1) allows registered user recordal only for a registered trade mark. The licence then rests on contract alone.
Post-term non-competes fail
Section 27 of the Contract Act voids restraints of trade. Courts have refused to enforce restraints that run beyond the contract’s term.
Picture a Faridabad sweet-shop brand that signs outlets in Ballabgarh and Palwal on a two-page letter. Royalty is “a percentage of sales”, with no definition. One outlet pays on sales net of GST and delivery-app commission; the brand expects gross. The gap grows every month. A defined base and an audit right would have settled it on day one.
Frequently asked questions
Is there a franchise law in India?
No, India has no franchise-specific statute. The franchise agreement is a contract under the Indian Contract Act, 1872, and the brand licence inside it falls under the Trade Marks Act, 1999. GST, income tax, stamp duty and the FEMA rules for a foreign franchisor apply on top. Since the contract does most of the work, write it clearly and both sides are covered.
What is the GST rate on franchise fees and royalty?
18%. The Gujarat Authority for Advance Ruling, in Tea Post Private Ltd. (3 July 2020), classified franchise fees and royalty for the right to use a trademark, brand name and know-how under service code 998396, “Trademarks and franchises”, at 18%. The franchisee can claim input tax credit on a valid invoice. Where only a narrow licence of rights over goods is granted, we check the classification first.
Who pays GST if the franchisor is outside India?
The Indian franchisee does, under reverse charge. Royalty paid to a foreign franchisor with no establishment in India is an import of services. The franchisee pays that GST through its own return and can claim input tax credit if it uses the service for business. We build this into the agreement so the royalty is quoted net of Indian taxes or grossed up, as agreed.
How much TDS applies to franchise royalty?
10% for a resident franchisor, under Section 393 of the Income-tax Act, 2025, once payments cross ₹50,000 in the year. This replaced Section 194J from 1 April 2026. Royalty paid to a non-resident follows the non-resident table in Section 393 and any tax treaty that applies. Our TDS return filing service handles the quarterly returns and certificates.
Should the franchisee be recorded as a registered user?
Yes, where the mark is registered. Under Section 49 of the Trade Marks Act, 1999 the owner and the user file a joint application in Form TM-U, with the written agreement and the owner’s affidavit. The official fee is ₹4,500 for e-filing. Once recorded, the franchisee can sue infringers in its own name under Section 52, making the owner a defendant. The licence then holds up in court as well as on paper.
Can a franchise agreement stop the franchisee from competing after it ends?
Usually not. Section 27 of the Indian Contract Act, 1872 voids agreements in restraint of trade, and in Percept D’Mark v. Zaheer Khan (2006) the Supreme Court refused to enforce a restraint that ran beyond the contract term. A non-compete during the term is generally upheld. After the term, rely on confidentiality and de-branding duties instead.
How is royalty usually calculated?
As a percentage of sales or a fixed monthly sum, as the parties agree. The law sets no rate. What matters is the base: gross sales, or sales net of GST, discounts and returns. We define it precisely and add the reporting format, the due date and the franchisor’s right to audit the outlet’s books. A clear definition stops the same argument coming back every month.
Does a franchise agreement need stamp duty?
Yes. Section 17 of the Indian Stamp Act, 1899 requires stamping before or at execution, and under Section 35 an unstamped agreement cannot be used in evidence until the duty and a penalty of up to ten times the deficit are paid. The rate depends on the state where it is signed. We confirm the current rate before the e-stamp paper is bought, so the paper is right the first time.
What it costs
Our fee plus the government fee that applies to your case, quoted before you commit. Tell us the situation and we will price it exactly.
The government costs are stamp duty at your state’s rate and, if you record the franchisee as a registered user, the official fee for Form TM-U: ₹4,500 for e-filing or ₹5,000 on paper. GST at 18% is charged on the franchise fee and royalty themselves, not on the paperwork.
Ready to begin?
Share your fee model and trademark details; we will draft a franchise agreement that protects the brand and the outlet.