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A jewellery franchisee running a regional store under a national brand receives a monthly royalty or brand-use fee invoice from the franchisor. The invoice must be routed through five distinct reconciliation surfaces — the master franchise agreement schedule (source of truth for the fee amount and any turnover-linked royalty layer), the franchisor's monthly tax invoice (SAC 9973 or 9997 at 18% GST), the franchisee's TDS deduction at Sl. 15 code 1005 (10% under legacy Section 194J), the franchisor's Form 26AS credit (deductee-side verification), and the franchisee's GSTR-2B ITC availability (with the 180-day Rule 37 payment rule). Franchisees running the reconciliation manually miss the 180-day ITC reversal at least once a year, use the wrong TDS section code (2% Sl. 4 code 1023 instead of 10% Sl. 15 code 1005), and generate Form 26Q filings that do not match the franchisor's records.
Build a monthly franchise-fee reconciliation cycle anchored on the master franchise agreement schedule. On invoice receipt, classify the SAC (9973 for pure trademark licensing, 9997 for bundled brand-plus-support), verify the GST rate (18%) and the pre-GST value against the agreement schedule, and route to accounts payable. On payment approval, deduct TDS at 10% under Sl. 15 code 1005 on the pre-GST value, deposit within seven days of the following month, and record the deduction against the franchisor's PAN in the TDS ledger. Match the invoice to the GSTR-2B inward supply for the tax period; take ITC on the 18% GST subject to the invoice being reflected. Run a 180-day ageing report at day 165 as a payment-reminder trigger to prevent Rule 37 reversal. At quarter-end, file Form 26Q with the franchisor's PAN and section code, verify the credit appears in the franchisor's Form 26AS via AIS, and reconcile the deducted-and-deposited amount to the Form 26Q ledger.
Master franchise agreement register with agreement number, franchisor GSTIN and PAN, fee schedule (fixed monthly plus turnover-linked layer), escalation clause, and payment terms; SAC code master with 9973 (trademark licensing) and 9997 (bundled franchise) both at 18% GST; TDS payment-code master with Sl. 15 code 1005 (royalty and professional/technical services, 10%) as the default classification for franchise fees; invoice register with franchise-fee flag, SAC code, pre-GST value, GST value, TDS-deducted flag; ageing register with 180-day Rule 37 breach flag at day 165; Form 26Q filing register with quarter-end AIS verification checkpoint; GSTR-2B reconciliation register with franchisor-invoice-to-2B-match status and ITC-availed indicator.
A monthly franchise-fee reconciliation pack: agreement-schedule-to-invoice-value variance report with tolerance flags; SAC classification audit trail (9973 versus 9997) with GST rate verification; TDS deduction ledger at Sl. 15 code 1005 with Form 26Q filing status; Form 26AS credit verification (quarterly, at AIS refresh) showing franchisor-side deductee credit; GSTR-2B inward supply reconciliation with ITC-availability status; 180-day ageing report with Rule 37 breach flag and payment-escalation queue; year-end variance analysis showing total franchise fees paid, total TDS deducted-and-deposited, total ITC availed, and Rule 37 reversal-and-re-availment events for the audit trail.
A franchisee running a regional Reliance Jewels store in a Karnataka tier-2 city opens the accounts-payable inbox on the first Monday of July 2026. The monthly royalty invoice from the franchisor has landed — a familiar document that reads “Brand-use fee for the month of June 2026” at an illustrative ₹2.5 lakh plus 18% GST, SAC 9973, franchisor GSTIN and PAN pre-printed. The franchisee’s finance manager processes the payment on the twelfth of the month, deducts TDS, and files the entry in Tally. On the twenty-second, a query from the internal auditor arrives — the TDS return draft for Q1 FY 2026-27 shows this deduction at section 194C (legacy Sl. 4 code 1023) at 2%. The auditor’s note is a single line: “This should be 194J at 10%, not 194C at 2%. Rework the deduction, deposit the differential, and file a Form 26Q correction.” The differential is ₹20,000 on this single invoice, and the franchisee has been running the same wrong classification for eighteen months. Jewellery franchise royalty Section 194J India is deceptively simple in the statute and repeatedly mishandled in practice — this article walks the reconciliation discipline that keeps it right, month after month.
Quick reference
| Aspect | Detail |
|---|---|
| TDS section | Section 393(1) Sl. 15, Income-tax Act 2025 (legacy 194J) |
| Payment code | 1005 |
| TDS rate | 10% on royalty and professional/technical services (2% for narrow sub-classes only) |
| GST classification | SAC 9973 (trademark licensing) or SAC 9997 (bundled franchise services) |
| GST rate | 18% (Notification 11/2017-CTR Entry 17) |
| ITC eligibility | Yes, subject to invoice-in-GSTR-2B and Section 16 conditions |
| Rule 37 reversal trigger | Non-payment within 180 days of invoice date |
| Deductee-side verification | Form 26AS credit, AIS refresh (quarterly) |
| Franchisor filing footprint | GSTR-1 outward supply → franchisee GSTR-2B inward supply |
| Franchisee filing footprint | Form 26Q (quarterly TDS return), GSTR-3B ITC availed |
The reconciliation in one paragraph
A jewellery franchisee pays the franchisor a monthly royalty or brand-use fee for the right to display the franchisor’s trademark, adopt its store template, and benefit from its national marketing spend. The payment is a licence to use intellectual property under Explanation (ba) to Section 393(1) Sl. 15 of the Income-tax Act 2025 — the successor to legacy Section 194J. TDS is deducted at 10% on the pre-GST value at payment code 1005, deposited within seven days of the following month, and reported in Form 26Q for the quarter. The franchisor’s invoice carries 18% GST under SAC 9973 (or SAC 9997 for bundled franchise-plus-support fees) per Notification 11/2017-CTR. The franchisee takes ITC on the 18% GST subject to the invoice appearing in GSTR-2B and payment being made within 180 days per Rule 37; delayed payment triggers ITC reversal with interest under Section 50 and re-availment upon eventual payment. Five documents must reconcile month over month — the master franchise agreement schedule, the franchisor’s tax invoice, the TDS-deducted-and-deposited ledger, the Form 26AS credit at the franchisor’s PAN, and the GSTR-2B inward supply.
What the jewellery franchise agreement looks like in India — safe illustrative brands
The organised jewellery retail sector in India runs a mix of company-owned-company-operated (COCO), franchise-owned-franchise-operated (FOFO), and franchise-owned-company-operated (FOCO) formats. Tanishq operates a substantial FOFO network across tier-2 and tier-3 markets alongside its metro COCO stores. Kalyan Jewellers, Malabar Gold & Diamonds, Senco Gold, Joyalukkas, and Reliance Jewels each run parallel franchise expansion programmes with regionally clustered franchisees. The franchise economics have three moving parts — a one-time initial franchise fee at agreement signing (a lump-sum payment for site setup, initial inventory allocation, and training), a fixed monthly royalty or brand-use fee (the recurring payment for the right to use the trademark and benefit from national marketing), and in some contracts a percentage-of-turnover royalty layer (a variable payment linked to the store’s monthly sales, typically 1% to 3% of net sales).
A typical FOFO agreement between a national jewellery brand and a regional franchisee runs to fifty or sixty pages. The core commercial terms sit in three or four annexures — Annexure A (site plan and store template), Annexure B (initial franchise fee and inventory arrangement), Annexure C (monthly royalty and turnover-linked fee schedule), and Annexure D (marketing contribution and training fees). The monthly royalty figure ranges from ₹1.5 lakh at tier-3 markets to ₹5 lakh or more at tier-2 metros for the fixed layer, with the turnover-linked layer adding 1% to 3% on net sales above a threshold. For the illustrative persona in this article, we use a fixed monthly brand-use fee of ₹2.5 lakh — representative of the mid-market tier-2 FOFO structure, and comfortably in the range disclosed in public agreements available on the MCA portal for jewellery-sector franchise arrangements.
The reconciliation cycle starts with the master franchise agreement. Every month, the franchisee’s finance manager reads the fee schedule in Annexure C, cross-checks against any turnover-linked layer calculation for the prior month, and validates that the franchisor’s invoice matches. Where the fixed fee is escalated annually (typical clauses provide for a 5% to 10% annual escalation tied to the WPI or CPI index), the reconciliation must confirm the escalation has been applied correctly. Franchisees who do not maintain a live fee-schedule register alongside the agreement lose track of the escalation clock and end up paying the wrong amount for months at a time.
The regulatory overlay — Section 393 + legacy 194J + Section 15 CGST
Three statutory provisions govern the franchise fee reconciliation. On the income-tax side, Section 393(1) Sl. 15 of the Income-tax Act 2025 replaces legacy Section 194J and captures fees for professional or technical services, royalty, and non-compete fees at 10% TDS on the gross payment to a resident. The TRACES payment code taxonomy assigns code 1005 to this section. The definition of royalty in Explanation (ba) is broad — consideration for the transfer of any rights (including the granting of a licence) in respect of any patent, invention, model, design, secret formula, process, trademark, or similar property, and consideration for the use of any such property. A franchise fee paid for the right to use a national jewellery brand’s trademark, logo, trade dress, and store template falls into the “use of trademark or similar property” limb, and 10% TDS applies. The narrow 2% sub-class under Sl. 15 covers royalty for sale, distribution, or exhibition of cinematograph films, payments to certain call-centre operators, and specified technical services — none of which capture a jewellery franchise fee. A franchisee who deducts at 2% treating the fee as a works-contract under Sl. 4 (legacy 194C) under-deducts by 8% and faces disallowance of 30% of the payment under the successor to Section 40(a)(ia) at year-end assessment, plus interest on the shortfall.
On the GST side, Section 15 of the CGST Act 2017 requires the franchise fee to be valued at the transaction value between the franchisor and franchisee. Where the parties are related (common shareholding, common directors, common ultimate ownership), Rule 28 of the CGST Rules applies and the value is the open-market value of the franchise licence. Notification 11/2017-Central Tax (Rate) taxes the franchise fee at 18% under Entry 17 / SAC Heading 9973 (leasing or rental services with or without operator; licensing services for the right to use intellectual property and similar products), or alternatively under SAC 9997 (residual “other services”) where the fee is a bundle of trademark licensing plus support services. Both classifications land at 18% — the practical difference is HSN reporting in GSTR-1 and the audit trail.
On the input tax credit side, Section 16 of the CGST Act permits the franchisee to take ITC on the 18% GST subject to (a) the franchisor’s invoice appearing in the franchisee’s GSTR-2B, (b) the underlying supply having been received (which for a service is deemed to be at the time the invoice is issued in the ordinary course), (c) payment being made within 180 days per Rule 37 (else reversal-and-re-availment), and (d) the franchisor having paid the GST to the government (a matching-based condition that is automatically satisfied once the invoice appears in 2B under the current IMS framework).
A worked example — illustrative numbers
A regional franchisee running an illustrative Reliance Jewels FOFO store in Mysuru receives the June 2026 brand-use fee invoice from the franchisor. The agreement’s Annexure C specifies a fixed monthly brand-use fee of ₹2.5 lakh, no turnover-linked layer for the current fiscal year, and a 6% annual escalation effective 1 April 2026. The June 2026 invoice reads as follows.
Illustrative — modelled on the standard FOFO brand-use fee structure disclosed in publicly available franchise agreements. The figures are representative of the operating pattern, not actual franchisor data. Cross-verify against your own agreement and franchisor invoice before action.
| Line | Description | Amount (₹) |
|---|---|---|
| 1 | Fixed monthly brand-use fee (SAC 9973) — pre-GST | 250,000 |
| 2 | CGST @ 9% | 22,500 |
| 3 | SGST @ 9% | 22,500 |
| — | Invoice total | 295,000 |
The franchisee’s finance manager processes the payment on 12 July 2026. The reconciliation steps are as follows.
Step 1 — Agreement schedule verification. Pull Annexure C from the master franchise agreement register. Confirm the June 2026 fee at the post-1-April-2026 escalated rate. If the agreement specifies the escalation on the FY-start date and the base fee was ₹2,35,850 in FY 2025-26, the escalated amount at 6% is ₹2,50,001 (rounded to ₹2,50,000). Variance: nil.
Step 2 — TDS deduction. Deduct 10% TDS at Sl. 15 code 1005 on the pre-GST value of ₹2,50,000. TDS = ₹25,000. Deposit within seven days of the following month — on or before 7 August 2026 for a June 2026 invoice date. Record in the TDS ledger against the franchisor’s PAN.
Step 3 — Payment to franchisor. Pay ₹2,95,000 minus ₹25,000 TDS = ₹2,70,000 to the franchisor. Retain ₹25,000 for TDS deposit.
Step 4 — Form 26Q filing. Include the deduction in the Q1 FY 2026-27 Form 26Q filing due by 31 July 2026 (for the April-June quarter) or Q2 filing due by 31 October 2026 (for the July-September quarter) depending on the deduction date. In this case the deduction is on the July payment date but relates to a June invoice — the CBDT position is that the deduction date is the payment date, so the deduction lands in Q2 (July-September) reporting.
Step 5 — GSTR-2B ITC verification. In the July 2026 GSTR-2B (available by 14 August 2026), verify the franchisor’s outward supply appears with invoice number, invoice date, and ₹45,000 total GST (₹22,500 CGST + ₹22,500 SGST). Take ITC of ₹45,000 in the July 2026 GSTR-3B.
Step 6 — 180-day Rule 37 check. The invoice date is around 30 June 2026 (or the first business day of July). The 180-day window expires around 27 December 2026 (or the corresponding date). Payment was made on 12 July 2026 — well within the window. No Rule 37 reversal.
Step 7 — Form 26AS verification. By the AIS refresh in October 2026 (for Q2 quarter-end), the franchisor’s Form 26AS should show a deductee-side credit of ₹25,000 against the franchisee’s TAN. Cross-verify. Any mismatch (wrong PAN, wrong section code, wrong amount) triggers a Form 26Q correction filing.
Scale this to a franchisee running twelve monthly brand-use fee invoices over the fiscal year, plus quarterly turnover-linked royalty invoices where applicable, plus the initial franchise fee amortised over the agreement tenure — and the reconciliation surface expands to roughly twenty-four to thirty transactions a year that must each pass the five-way check.
Common reconciliation breakages
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Wrong TDS section code — 2% Sl. 4 code 1023 instead of 10% Sl. 15 code 1005. The single most common error. Franchisees who treat the brand-use fee as a works-contract under-deduct by 8%. The correction requires depositing the differential with interest under Section 201(1A) at the applicable rate from the original deduction due date to the actual deposit date, plus filing a Form 26Q correction return.
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TDS deducted on GST-inclusive amount instead of pre-GST value. CBDT circular guidance (Circular 23/2017 and successor clarifications) confirms TDS under royalty/professional-services heads is deducted on the pre-GST taxable value. Franchisees who deduct on the GST-inclusive ₹2,95,000 over-deduct by ₹4,500 on this single invoice. The franchisor takes the extra credit in Form 26AS, but the franchisee’s Form 26Q shows a mismatched deduction base.
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180-day payment rule breach without Rule 37 reversal. Franchisees on stretched working capital pay the franchise fee 200+ days after invoice date without reversing ITC at day 180. On subsequent audit, the ITC is disallowed with interest under Section 50 from the availment date to the reversal date.
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SAC 9973 versus SAC 9997 mismatch between franchisor and franchisee books. Franchisor issues at SAC 9973 (trademark licensing), franchisee books it as SAC 9997 (bundled service). The rate is the same (18%), but the GSTR-1 versus GSTR-2B HSN aggregation shows a variance that triggers an audit query.
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Escalation-clause missed for a fiscal year. Agreement specifies 6% annual escalation, franchisor invoices at the escalated rate from April, franchisee’s payables system continues to book at the prior-year rate. Six months later the annual reconciliation surfaces the variance, and the franchisor demands the accumulated shortfall plus GST plus interest.
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Turnover-linked royalty layer computed on the wrong sales base. Agreement specifies the layer at 2% of net sales above a threshold; franchisee interprets net sales as ex-GST invoice value, franchisor interprets it as inclusive of GST — the variance flows through the quarterly royalty settlement and creates a payable that the two parties dispute.
How a reconciliation platform handles this — customer-benefit altitude
Terra Insight’s reconciliation platform (TransactIG) ingests the master franchise agreement schedule as a structured register, applies the SAC-and-section-code classifier to every incoming franchisor invoice, and runs the five-way reconciliation against the TDS ledger, Form 26Q filings, Form 26AS credits (via AIS refresh), and GSTR-2B inward supplies — surfacing exceptions before the payment or the return is filed rather than after the auditor’s query lands. Franchisees running the platform typically catch the Sl. 15 code 1005 versus Sl. 4 code 1023 mis-classification at agreement onboarding rather than at year-end, hold the 180-day ageing report as a live payment-escalation queue, and eliminate the annual Form 26AS mismatch chase. The commercial pillar for the category is jewellery reconciliation software India, and the broader reconciliation software India hub anchors the cross-category architecture.
For franchisees integrating the brand-use fee reconciliation with the wider jewellery finance stack, the bullion versus retail GST classification article covers the outward-supply side of the franchisee’s own retail invoices, the diamond and precious-stone HSN 7102/7103 article covers the mixed-rate invoice mechanics, the wedding-purchase invoice-versus-cash article covers the audit-defensibility of high-value walk-in sales, and the export partial realisation and EEFC account article covers the FEMA-side reconciliation for franchisees with an export tail. For the franchisee’s own outward-supply mechanics, the mixed-rate jewellery invoice article walks the 3% + 5% + 18% split, and the 18 audit-defensible scenarios article is the closer that ties every jewellery reconciliation surface into a single audit-defensible pack.
The five FAQs below address the operational questions Indian jewellery franchisees ask most often when implementing structured brand-use fee reconciliation.
Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →
- ▸ Section 393(1) Sl. 15, Income-tax Act 2025 (payment code 1005) — Fees for professional or technical services; royalty; non-compete fees. Successor to legacy Section 194J. Rate 10% on royalty and professional/technical service payments to residents where aggregate payments in a financial year exceed the threshold; reduced 2% rate applies to specified sub-classes including certain royalty payments for sale/distribution/exhibition of cinematograph films and payments to call-centre operators. Threshold and rate are captured under the new TRACES payment-code taxonomy at code 1005.
- ▸ Explanation (ba) to Section 393(1) Sl. 15, Income-tax Act 2025 — Definition of royalty. Consideration for the transfer of all or any rights (including the granting of a licence) in respect of any patent, invention, model, design, secret formula or process or trademark or similar property; use of any such property; use or right to use any industrial, commercial or scientific equipment; and imparting of information concerning technical, industrial, commercial or scientific knowledge, experience or skill. Franchise fees paid for the right to use a brand name, logo, and trade dress fall squarely within the royalty limb of Explanation (ba).
- ▸ Notification 11/2017-Central Tax (Rate) — Entry 17 / Heading 9973 — Rate of GST on services. Leasing or rental services with or without operator; licensing services for the right to use intellectual property and similar products — SAC 9973 attracts 18% GST when the underlying right is a franchise, brand licence, trademark, patent, copyright, or similar intellectual property. Where the franchise arrangement is more accurately characterised as a bundle of support services (marketing, training, quality assurance) with intellectual property as one component, SAC 9997 (other services) at 18% is the alternate classification. Both land at 18% — the classification affects HSN reporting, not the rate.
- ▸ Section 15, Central Goods and Services Tax Act 2017 — Value of supply. Royalty and franchise fees are valued at the transaction value between unrelated parties acting at arm's length; where franchisor and franchisee are related persons (common shareholding, common directors), Rule 28 of the CGST Rules applies and the value is the open-market value or 90% of the price at which the franchisee onward-supplies to unrelated customers, whichever is applicable. Fixed monthly franchise fees, percentage-of-turnover royalty, and one-time initial franchise fees are each separately taxable events.
- ▸ Section 16 and Section 49 read with Rule 37, CGST Act and Rules 2017 — Input tax credit. Franchisee is entitled to ITC on the 18% GST paid to the franchisor on royalty and brand-use fees provided the franchisor's invoice appears in the franchisee's GSTR-2B and payment is made within 180 days of the invoice date. Rule 37 requires reversal of ITC if payment is not made within 180 days, with re-availment allowed upon eventual payment. The 180-day rule is a common reconciliation break for franchisees on longer working-capital cycles.
- ▸ Form 26AS, Rule 31AB and Rule 114-I, Income-tax Rules 1962 — Annual Information Statement. TDS deducted by the franchisee at Sl. 15 code 1005 (10%) is deposited to the central government within seven days of the following month, reported in Form 26Q for the quarter, and appears in the franchisor's Form 26AS as a deductee-side credit. The franchisee reconciles the deducted-and-deposited amount to the Form 26Q filing and cross-verifies that the franchisor's PAN, section code, and gross amount match the internal ledger before quarter-end.