What fees should a franchisor charge in India? Most franchise fee structures combine a one-time franchise fee, an ongoing royalty, a marketing or brand fund contribution, and sometimes technology, training, renewal and transfer fees. Each fee should pay for something specific. The upfront fee should cover the real cost of onboarding a franchisee plus a fair margin, not act as a profit centre. The full stack must still leave the franchisee a sensible payback. GST applies to franchise fees and royalty, generally at 18%, and TDS applies to many of these payments.
This guide covers the whole fee stack. For how to set the royalty rate itself, read the royalty question.
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The components of a franchise fee structure
| Fee | When it is paid | What it should pay for |
|---|---|---|
| Franchise fee (upfront) | Once, at signing | Recruitment, qualification, training, site and launch support, and access to the system |
| Royalty | Monthly or quarterly, usually a share of sales or a fixed amount | Ongoing support, brand stewardship, audits, system updates |
| Marketing or brand fund | Monthly, alongside royalty | Brand-level marketing that benefits the whole network |
| Technology fee | Monthly or yearly | POS, ordering, CRM or app costs the brand provides |
| Training fee | Once, or per new staff batch | Training beyond what the franchise fee already covers |
| Renewal fee | At the end of the term, if renewed | Refresh training, updated standards and a new term |
| Transfer fee | When a franchisee sells the outlet | Vetting and training the incoming franchisee |
Supply and fit-out margins: the hidden income
Many brands also earn from what franchisees must buy: raw materials, packaging, equipment or fit-out through approved vendors. That can be fair when it protects quality and consistency. It becomes a problem when it is hidden. A franchisee who later finds a markup nobody mentioned stops trusting every number you gave them.
Disclose supply margins in writing before signing, and tie approved-supplier rules to quality, not to hidden profit. Our franchise law in India guide explains how tie-in and exclusive supply clauses are treated under competition law. For Brio Elevators, we built a sales margin annexure across three product tiers, so brand and partner shared one reference for product economics. Read the Brio story.
How to set the upfront franchise fee
Start from cost, not from what other brands charge. List what it really costs you to bring one franchisee from enquiry to opening day:
- Recruitment and qualification: marketing, calls, meetings, discovery visits.
- Training: trainer time, materials, the franchisee's team at your outlet.
- Site and launch support: site approval, layout, pre-opening checks, launch-week presence.
- Documentation and onboarding: agreement, manuals, system access.
Add a fair margin for your risk and your brand. That is the fee. If it sits far above your onboarding cost, ask why. A high upfront fee that is mostly profit tempts you to sign anyone who can pay. That is how weak networks are built.
The opposite mistake is also common. A low upfront fee paired with a heavy royalty can hide a model that only works on paper. The two must be designed together.
The fee stack and franchisee payback
Every rupee in fees comes out of the franchisee's profit. So the test is not whether each fee looks reasonable on its own. It is whether the whole stack still leaves an honest operator a sensible payback on their total investment, at market rent and salaries.
Model it from the franchisee's side: sales, costs, royalty, marketing fund, tech fee, then profit and payback. If payback only works in the best case, reduce the fee stack or fix the model. Our guide to unit economics before ambition walks through the method. Territory size also matters, because it caps the sales a partner can reach. See territory and exclusivity design.
A worked example (illustrative numbers only)
Example only, not a benchmark. These figures are invented to show the method. They are not typical for any sector, and you should not copy them. Amounts exclude GST.
| Item (ILLUSTRATIVE) | Amount |
|---|---|
| Onboarding cost to the brand per franchisee | ₹3,90,000 |
| Margin added | ₹1,10,000 |
| Upfront franchise fee | ₹5,00,000 |
| Outlet monthly sales (assumed) | ₹8,00,000 |
| Royalty at 5% of sales | ₹40,000 per month |
| Marketing fund at 2% of sales | ₹16,000 per month |
| Technology fee (flat) | ₹5,000 per month |
| Total ongoing fees | ₹61,000 per month |
| Outlet profit before ongoing fees (assumed) | ₹1,61,000 per month |
| Outlet profit after ongoing fees | ₹1,00,000 per month |
| Total franchisee investment, including upfront fee (assumed) | ₹36,00,000 |
| Simple payback before fees / after fees | About 22 months / 36 months |
The lesson is the gap. Ignore the fee stack and payback looks like under two years. Include it and it is three years. Prospects deserve the second number. Then test it against a weaker sales case, not just the base case.
Marketing fund governance
The marketing fund is the fee most likely to cause disputes, because franchisees pay into it but do not control it. Good governance is simple:
- Account for the fund separately from the brand's own income.
- Say in writing what it can and cannot be spent on, including whether it may fund recruitment of new franchisees. That question causes many disputes.
- Report spend and results to franchisees at a fixed interval.
- Carry unspent balances forward for marketing, rather than absorbing them.
- Invite a small franchisee council to give input on plans.
GST and TDS on franchise fees
GST. Franchise fees and royalty for the right to use a brand and system are generally taxed at 18%. The Gujarat Authority for Advance Ruling classified them under SAC 998396, "Trademarks and franchises", and the September 2025 GST rate changes left that rate unchanged. The GST treatment of other fees, such as marketing fund contributions, depends on how they are structured.
TDS. Franchisees paying royalty and certain fees usually deduct TDS. From 1 April 2026, TDS on payments to residents sits in Section 393 of the Income-tax Act, 2025 (earlier Section 194J). Rates and thresholds depend on the payment type. Payments to foreign franchisors follow separate withholding rules.
This is general information, not tax advice. Confirm the treatment of each fee with your CA before you finalise the structure.
Ethical rules for franchise fees
- No fee should only make sense if you sign many franchisees fast.
- Every fee maps to a service the franchisee can see.
- The full fee stack, including supply margins, is disclosed in writing before signing. Put it in your franchise investor pack.
- No new fees mid-term that the agreement does not allow.
- Marketing fund money is spent on marketing and reported.
- Fees are reviewed with evidence from real outlets, not raised because the network grew.
Common mistakes
- Copying a competitor's fee without knowing their costs or model.
- Setting a high upfront fee to fund the head office.
- Charging a royalty the outlet cannot carry after rent and salaries.
- Adding tech and training fees late, after the prospect has agreed a number.
- Hiding margins on mandatory supplies.
- Mixing marketing fund money with company income.
- Quoting fees without GST, then surprising the franchisee on the invoice.
- Letting the fee schedule in the pitch differ from the agreement. See the anatomy of a franchise deal that still works in year five.
How DB-FF designs the fee structure
Fee design comes after readiness and unit economics. If you are not sure the unit works yet, start with whether your business is ready to franchise, then read the full path in how to franchise your business in India.
At The Franchise Insiider, the DB Franchise Framework (DB-FF) designs the fee structure as part of the franchise model: franchise fee, royalty, marketing fund and other fees, tested against franchisee unit economics and payback. We structure the commercial terms and prepare the franchise agreement framework, and a qualified lawyer reviews and finalises it. DB-FF starts from ₹60,000, depending on scope.
For Chatkaro, unit economics and the franchise model came before any selling, and its first franchise was finalised in 2 months from onboarding. See all success stories, or browse more guides in The Almanack.
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FAQs
What is a franchise fee in India?
A franchise fee is the one-time amount a franchisee pays at signing for the right to join the system. It should cover recruitment, training, site and launch support and onboarding, plus a fair margin. It is separate from royalty, the marketing fund and the franchisee's total investment in the outlet.
How much should I charge as a franchise fee?
There is no standard figure. Build the fee from your real cost of onboarding one franchisee, then add a fair margin. Check that the full fee stack still leaves the franchisee a sensible payback at market rent and salaries. Do not copy another brand's fee.
What is the difference between a franchise fee and a royalty?
The franchise fee is paid once at signing and covers onboarding and launch. The royalty is paid monthly or quarterly, usually as a share of sales, and funds ongoing support, brand stewardship and system updates. The two should be designed together, not in isolation.
Is GST charged on franchise fees and royalty in India?
Yes. Franchise fees and royalty are generally taxed at 18% GST. The Gujarat Authority for Advance Ruling classified them under SAC 998396, Trademarks and franchises, and the September 2025 rate changes left that rate unchanged. Confirm each fee's treatment with your CA.
Is TDS deducted on franchise royalty and fees?
Usually, yes. From 1 April 2026, TDS on payments to residents sits in Section 393 of the Income-tax Act, 2025, which replaced Section 194J for royalty and professional fees. Rates and thresholds depend on the payment type, and foreign franchisors follow separate rules. Confirm with your CA.
How should a franchise marketing fund be managed?
Account for it separately from the brand's own income, define in writing what it can be spent on, report spend and results to franchisees at a fixed interval, carry unspent balances forward for marketing, and invite franchisee input on plans.
Can a franchisor earn a margin on supplies to franchisees?
It can, if the margin is disclosed in writing before signing and the supply rules are tied to quality and consistency. Hidden markups damage trust. Tie-in and exclusive supply clauses can also raise competition law questions, so review them with your lawyer.