Tds on non refundable frencisee fees

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Querist : Anonymous

Querist : Anonymous (Querist)

19 August 2013 Whether TDS on lump sum non refundable frenchisee fee is required to be deduct or not..??

kindly give the reference.

C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)
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19 August 2013 If the franchisee fee is non refundable then it is to be treated as income and TDS is to be deducted by the depositor and not you. If against the franchisee fee you have created any asset then this can be treated as capital receipt and accordingly no tax will be payable by you as the same is to be reduced from the cost of acquisition of the assets. If the fee is received only against the formula then it is revenue income asd is taxable in the year of receipt.

Querist : Anonymous

Querist : Anonymous (Querist)

07 December 2013 Thank you sir but how can we create an asset against its payment.

Asha Kanta Sharma online

Asha Kanta Sharma online

(Expert)
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27 July 2025 Great question! Here’s a bit more clarity on **TDS on non-refundable franchisee fees**:

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### 1. **Is TDS deductible on non-refundable franchisee fees?**

* **Yes**, if you are paying a **non-refundable franchisee fee** to the franchisor, it is generally considered as **income in the hands of the recipient (franchisor)**.
* You (the payer) are **required to deduct TDS** on this amount under **Section 194J (Fees for Professional or Technical Services)**, assuming it is for a service or right granted.
* If it is a **capital payment** (i.e., payment for acquiring an intangible asset or right), the situation may differ (explained below).

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### 2. **When is franchisee fee treated as capital receipt (and no TDS)?**

* If the franchisee fee is paid to **acquire an asset or right** (like a trademark, brand name, or exclusive business rights), it can be treated as **capital expenditure**.
* In this case, the franchisee fee forms part of the **cost of acquisition of the intangible asset**.
* TDS may **not be applicable** on such capital payments (but sometimes Section 194J can still apply based on facts).
* Also, capital payments are **not deductible as expense immediately** but are **depreciated/amortized** over time.

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### 3. **How can you “create an asset” against franchisee fee?**

* Suppose you pay ₹10 lakhs as non-refundable franchisee fees.
* If this fee gives you **exclusive rights or a license to use the franchise brand**, you have essentially **acquired an intangible asset**.
* You will **capitalize this fee as an intangible asset** in your books.
* Over time, you **amortize/depreciate** this asset as per accounting and tax rules.
* Hence, it is **not treated as revenue expense** but a **capital expense**.

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### 4. **Reference:**

* **Section 194J of the Income Tax Act** — TDS on fees for professional/technical services (including franchise fees).
* **CBDT Circulars & judicial pronouncements** often clarify the capital vs revenue nature of franchise fees.
* If in doubt, always get the nature of payment clarified from your CA or tax advisor.

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### Summary for you:

| Situation | TDS Applicability |
| -------------------------------------------- | --------------------------------------------------- |
| Franchise fee for service/right | Deduct TDS under Sec 194J |
| Franchise fee for intangible asset (capital) | May not attract TDS; treated as capital expenditure |

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If you want, I can help draft an email or letter to your tax consultant for clarity, or help with a practical example. Just ask!

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