Service tax on coaching and training center under franchisee

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

31 March 2014 A pertnership firm has taken franchisee of jet airways. The firm has to pay 1 lac for 5 months, and 30% receipt as a royalty which the firm gets as a coaching fees.

The firm deposits total amount in the franchisor's bank account and then franchisor transfers 70% of total amount to the firm.

The question is when the firm is liable to pay service tax (weather on receipt of coaching fees or on receipt of 70% amount from franchisor),
at what amount the service tax will be leviable?

sudarshan

sudarshan (Expert)
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01 April 2014 firm is providing coaching service. so it has to collect ST from trainees.
It will have to pay ST on royalty also as IPR service.

Querist : Anonymous

Querist : Anonymous (Querist)

05 April 2014 The question is when the firm is liable to pay service tax (weather on receipt of coaching fees or on receipt of 70% amount from franchisor), at what amount the service tax will be leviable?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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24 July 2025 Let's break down your query about **service tax liability for a coaching/training center under a franchise arrangement**:

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### Scenario Recap:

* Partnership firm has a **franchise from Jet Airways**.
* The firm charges **coaching fees from trainees** (say 100%).
* Firm pays a **royalty of 30% of the receipts** to franchisor.
* Franchisor **transfers 70% of total receipts back to the firm**.
* Question:

1. When is service tax payable by the firm?
2. On which amount should service tax be paid — coaching fees received or the 70% amount transferred by franchisor?

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### Service Tax Treatment:

1. **Service Tax on Coaching Fees (Training Service):**

* The firm is **providing coaching/training service** to trainees.
* So, **service tax is payable on the coaching fees collected from the trainees** (gross amount before royalty deductions).
* The liability arises **when the firm receives the coaching fees** or issues invoice (whichever is earlier), **not on the amount received from franchisor**.

2. **Service Tax on Royalty (IPR Service):**

* The firm is paying **royalty to the franchisor** for use of brand/IPR.
* This royalty is also **subject to service tax under "intellectual property service"** and is **payable on the 30% royalty amount** by the firm to the franchisor.
* The firm acts as a service recipient here and may have to pay service tax under **reverse charge mechanism** on royalty paid.

3. **Regarding the 70% amount transferred back by franchisor to the firm:**

* This is **not additional income for the firm**; it's just a pass-back of the coaching fees (70% portion) after royalty deduction.
* **No service tax is payable on this amount separately** because service tax is always on gross value of services provided or received, not on internal settlements.

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### Summary:

| Aspect | Taxable Amount for Service Tax | Taxable Person |
| ------------------------------------- | ----------------------------------------- | --------------------------------------- |
| Coaching service fees | Full coaching fees received from trainees | Partnership firm |
| Royalty paid to franchisor | 30% royalty amount paid | Partnership firm (under reverse charge) |
| Amount received from franchisor (70%) | No separate tax liability | Not applicable |

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### Important points:

* The firm should **collect service tax on gross coaching fees from trainees** at the applicable rate (say 15% including cess).
* The firm should **pay service tax on royalty paid to franchisor** (reverse charge).
* The amount credited by franchisor (70%) is **not subject to service tax**, it’s just a financial settlement.

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If you want, I can help draft a simple accounting and tax treatment workflow for this. Would you like that?

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