Key takeaways
- Franchise or licence: no FDI approval; royalty taxed at 20% or the treaty rate.
- Own stores: single-brand retail, 100% automatic; 30% India sourcing above 51% FDI.
- The Indian partner is the biggest risk: check finances, promoters, track record, related parties.
Quick answer: franchising and licensing need no FDI approval; you earn royalties, taxed in India at 20% (plus surcharge and cess) or the lower treaty rate. Owning stores yourself is single-brand retail: 100% FDI under the automatic route, but above 51% you must source 30% of goods from India. Whatever the route, the Indian partner is the biggest risk, so check them properly.
The four routes compared
| Route | Your investment | How you earn | Control |
|---|---|---|---|
| Master franchise | None | Upfront fee and royalties | Through the franchise agreement and brand standards |
| Licensing (brand or technology) | None | Royalties | Limited to the licence terms |
| Joint venture | Equity in an Indian company | Dividends, plus royalties if licensed | Shared, set by the shareholders’ agreement |
| Own subsidiary (single-brand retail) | Full | Retail profits | Full |
FDI rules if you own the stores
- Single-brand retail trading: up to 100% FDI under the automatic route, for products sold under one brand.
- Local sourcing: above 51% FDI, at least 30% of the value of goods bought must come from India, measured as an average over the first five years from the first store, then every year.
- Online first: you can sell online before opening physical stores, but are expected to open stores within two years.
- Multi-brand retail is far more restricted: up to 51% with government approval and conditions.
- Investors with Chinese or other land-border owners: see Press Note 2 (2026).
Tax on royalties and fees
- Withholding tax: the Indian partner deducts tax on royalties and technical fees paid to you: 20% plus surcharge and cess under Indian law, or the lower treaty rate (often 10% to 15%) if you provide a tax residency certificate and the self-declaration in Form 41.
- No RBI approval is needed to pay royalties; they are current-account payments, made through the partner’s bank with the usual tax forms.
- GST: the Indian partner pays GST on imported royalties under reverse charge (18%) and can usually claim it back as input credit.
- Permanent establishment risk: if your staff run the Indian business day to day, India may tax a share of your profits directly. Keep roles clear in the agreement.
Checking your Indian partner
A franchisee or licensee in India carries your brand. Before signing, check:
- Financial strength: filed accounts, borrowings and charges on assets; can they fund the store rollout they promise?
- Promoters: background, other businesses, litigation and regulatory history.
- Track record: other brands they run, and how those relationships ended.
- Related parties: property, supply and service deals with the promoter group that can drain margins or royalties.
- Real estate: lease terms and title for the planned locations.
See partner due diligence in India and how to verify an Indian company.
Protect the brand first
- Register your trademarks in India before talking to partners; India is part of the Madrid Protocol.
- Put audit rights, sales reporting and royalty verification in the agreement.
- Agree exit terms: what happens to stores, stock and the brand if the relationship ends.
Related: appointing a distributor in India, joint ventures, taking profits out of India.
Sources
- DPIIT (Consolidated FDI Policy, retail trading)
- RBI: Master Direction, Foreign Investment in India
- WIPO: Madrid System members (India)
Frequently asked questions
Can a foreign brand open its own stores in India?
Yes. Single-brand retail trading allows up to 100% FDI under the automatic route. Above 51% foreign ownership, at least 30% of the value of goods bought must be sourced from India, averaged over the first five years and then annually.
Do foreign franchisors need RBI approval to receive royalties from India?
No. Royalty and franchise fees are current-account payments that do not need RBI approval; the Indian partner pays through its bank after deducting withholding tax.
What is the withholding tax on royalties paid by an Indian company to a foreign brand owner?
20% plus surcharge and cess under Indian law, or the lower rate in the tax treaty with the brand owner's country if it provides a tax residency certificate and the required self-declaration.
Franchise or own stores in India: which is better?
Franchising needs no investment and gets you in faster, but your brand depends on the partner. Own stores give control but need capital and the 30% local sourcing rule above 51% FDI. Many brands start with a master franchise or JV and buy out later.
Please note: this guide is general information based on the rules as they stood on the review date above. Regulations and RBI/CBDT procedures change often — please get advice on your specific facts before acting.