Procedures & Taxation on Royalty Income

[Guest]

Hi Everyone,

The company i work for gives out Franchisees and charges a certain percentage or a lump sum amount on its monthly Gross Sales as 'Royalty Share'. In terms of accounting for the same i needed to have a few clarifications/answers for the following:

• Should we raise a Tax Invoice for the monthly Royalty Charges? If i'm not wrong the only applicable tax on this would be Service Tax once the total income from the same goes beyond INR 9 Lacs.
• The TDS will be applicable at 10% correct? Does any one know what will be the limit post which it will be applicable? INR 30,000 is what i know of.
• Will the Income from Royalty Share be pooled up with other income and taxed at 30% after the expenses or it has a separate 'Royalty Tax' for this stream of revenues (I recently read an article that there was 10% Royalty Tax on income received for Royalty, not sure if it was over and above the standard Income Tax or one off, the link is here http://timesofindia.indiatimes.com/budget-2016/industry/Budget-2016-Lower-tax-on-patent-income-to-boost-RD/articleshow/51217476.cms)

I know its a little strange question i wasn't exactly sure which section to put it into. TY in advance everyone.

[Ganeshan Kalyani]

In my view service tax is not applicable if the arrangement is based on profit sharing concept. Thanks.

AI Summary

Royalty taxation: profit-sharing arrangements may avoid service tax, while TDS and income tax rules still apply. A company charges franchisees a 'royalty share' and queries issuance of tax invoices, applicability of service tax beyond the stated threshold, the applicability and threshold for TDS at a stated rate, and whether royalty receipts are taxed separately or pooled with other income. A respondent states that service tax is not applicable where the arrangement is based on a profit-sharing concept, while TDS and income tax treatment remain uncertain in the discussion.