We have royalty on sales from restaurant. We pay royalty to OPC. Earlier in IT act-1961, we used to pay at 10% under 194J. Now there are two code 1026 & 1027. So this scenario where it falls.
In new income tax act-2025, which code i have to use either 1026 or 1027 code.
For paying franchise or brand royalty for a restaurant to an OPC under the Income-Tax Act, 2025, you must use Code 1027 (TDS rate of 10% under Section 393(1) [Table: Sl. No. 6(iii).D(b)]). Code 1026 is reserved for Fees for Technical Services (FTS) and cinematographic film royalties, which carry a lower TDS rate of 2%.
Under the new Income-Tax Act 2025 (effective April 1, 2026), TDS on royalty and professional fees has been renumbered. The relevant section in the new Act for TDS on royalty/professional fees is now in the equivalent of old Section 194J.
For challan codes on the TIN-NSDL/e-pay tax portal, the mapping is:
- Use the TDS code for royalty payments under the new Act. The portal updated challan codes when the new Act came into effect.
- For royalty paid to an OPC, if the OPC is a domestic company, TDS applies at 2% (for technical services) or 10% (for royalty/professional fees under the broader definition).
Practical step: Go to the income tax portal e-Pay Tax section, select TDS, and look for the updated section descripttion under the new Act that says royalty or franchise fees. The descripttion in the dropdown will clarify whether it is 1026 or 1027 , the new Act used different numbering but the portal labels match the section descripttions.
If the royalty is for brand usage/franchise (restaurant brand), it typically falls under royalty under the new Act at 10% TDS. Confirm by checking the agreement , if it calls the payment royalty or license fee, use the royalty code.
For updated TDS rates and threshold changes under the new Act, this [TDS threshold changes guide](https://taxgarden.in/blog/tds-threshold-changes-fy-2025-26-budget-2025-new-limits-india) covers the key rate and section updates.
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