ROYALTY PAYABLE TO FOREIGN COMPANY BUT PAID IN INDIA

[SUDHAKAR SIVARAMAN]

Dear Experts, I have one query

A Pvt Ltd, an Indian company has to pay royalty to B a foreign company to the extent of Rs.10 core. Now B company directed the A pvt ltd to pay this royalty amount of Rs.10 crore to C Pvt Ltd (Supplier of B company in India). C Pvt ltd will adjust entire amount towards export realisation to be received from B company.

Now my questions are:

1. Whether A Pvt Ltd can pay directly to C Pvt Ltd?

2. If so, whether GST has to be paid and TDS has to be deducted?

3. Whether tri-party agreement required to do so?

4. Is there any problem for C Pvt Ltd to get this amount from A Pvt Ltd? Since export proceeds going to be received in India Rupee.

Kindly clarify experts.

[KASTURI SETHI]

Sh.Sudhakar Sivaraman Ji,

Query-wise reply is as under :-

1. Yes.

2. If IGST was already paid on royalty and license fees as duty of Customs while importing the goods, then IGST will not be payable again. Read Notification No.6/18-IT(Rate) dated 25.1.18 read with Section 3(7) of the Customs Tariff Act and Section 14(1) of the Customs Act and Rule 10(1) (c) of Customs Valuation (determination of Value of Imported Goods) Rules, 2007 and Section 5 of IGST Act, 2017. TDS on GST has to be paid. If goods and services are not taxable, TDS on GST is not required to be paid/deducted.

3. Yes. However, it depends upon the Authorised Bank. Final decision is to be taken by the Authorised Bank.

4. No. Transaction should be through VOSTRO Account.

Pl. note that the Authriised Bank must be satisfied regarding the genuineness of transaction. If the Authorised Bank is not satisfied with the bona fides, the bank may direct to seek permission from RBI regarding relaxation mentioned in 3 & 4 above of the reply.

Disclaimer : These are my personal views for academic and education purposes and not meant for legal proceedings in any Court.

[KASTURI SETHI]

In continuation to my above reply, the invoice to be raised must be comprehensive.

AI Summary

Royalty payment to third-party permitted but bank approval, GST treatment and documentation determine compliance requirements. Third party discharge of royalty directed by the foreign recipient is permissible subject to foreign exchange controls and Authorised Bank approval. IGST already paid as part of customs on import need not be paid again; where supplies are taxable, TDS on GST must be deducted. A tri party agreement may be required by the bank, which may insist on RBI permission if transaction genuineness is not established. Payments should be routed through proper channels such as a VOSTRO account and supported by a comprehensive invoice.