Technical know How and Royalty payment

[Pradeep Kaushik]

Respected Sir,

  

We are 100% subsidary company of a Korean Co.

There is some queries:

 

1. Payment for Know How - Technicians Visited from South Korea to India for technical support ( For this purpose what documentation we require from Korea office and what are our Direct/Indirect Tax liabilities in this regard)

 

2. Payment for Initial Royalty-( For this purpose what documentation we require from South Korea and what are our Direct/ Indirect Tax liabilities in this regard).

 

Please suggest us your best advice in detail.

Best Regards.

 

Pradeep kaushik

 

 

[Rahul Sonawane]

Dear Pradeep,

In sr No.clarify that, whether any payment or reimbersement is made to Korean co. for this service. , if yes then you need to pay service on said amount @ 10.3% under reverse charge mechanism.

 

2. First of all you need to get registered your self under IPR Service as a service receipent. Where in case of Royalty you need to pay service tax @ 10.3%  after the provision in made in the Books of Accounts or Royalty payment is made. You also need to pay R & D cess @5% on Royalty Amount and you will get the abatement of this R & D cess amount while paying service tax. 

Documents required are copy of Agreement.

 

[Pradeep Kaushik]

Respected Mr. Sonawane,

 Thanks for the Advice.

We are paying the Royalty on our Sales Turnover. So how the Service Tax and R&D Cess is applicable. Please Clarify.

Further, please let me know the procedure of R & D Cess payment (It registration, Payments, return and any other legal compliances)

I shall be very greatful to you.

Best Regards.

Pradeep Kaushik

[Rahul Sonawane]

Dear Pradeep,

Service tax is applicable on Royalty payment under Reverse charge mechanism under Intellectual property Right Services.

 

 

[Pradeep Kaushik]

Respected Mr. Sonawane,

Thanks for your early reply.

Please let me know the procedure for R&D Cess also. (It's registration, Payments, return and any other legal compliances)

Best Regards.

Pradeep Kaushik

[Rahul Sonawane]

For R&D cess payment you can draw a cheque on A/c R&D Cess & need to fill a challan.

As per my knowledge there is not any other legal compliances, but make sure.

 

[Rahul Sonawane]

As per my knowledge you can make the payment in UNION bank.

AI Summary

Reverse charge on IPR services: recipient must pay service tax and remit R&D cess on royalty payments. Payments to a foreign parent for technical know how and royalties treated as Intellectual Property Right services attract service tax under a reverse charge mechanism; the recipient must register as an IPR service recipient and pay service tax when the charge is booked or the royalty is paid. An R&D cess applies to royalty receipts but is eligible for abatement against the service tax on the royalty. Required documentation includes the agreement, and R&D cess is remitted by cheque with a challan through standard banking channels.