Royalty from India: licensing your technology to an Indian company instead of investing

Short answer: Licensing technology to an Indian manufacturer earns fees and royalties without putting capital into India, and it works best when the technology can be documented and protected and the licensee already has the plant, people and customers to use it. India no longer caps or pre-approves royalties: since December 2009 (by an amendment gazetted in May 2010) royalties and lump-sum technology fees have been ordinary current-account remittances, so rates, minimums and fees are a commercial negotiation, priced at arm's length only where the licensee is a group company [1][2][3]. What the licensor keeps depends largely on paperwork: India withholds 20% plus surcharge and cess on royalties and technical fees, cut to the treaty rate (10% for German, French, Dutch, Spanish, Swiss and Swedish licensors) with a tax residency certificate and Form 41, and GST on the royalty is the Indian licensee's to account for under reverse charge [4][5][6][7].

Who this is for: Owners, CFOs and heads of licensing at German, Swiss, Nordic and other European machinery and industrial-technology companies weighing a licence to an Indian manufacturer against exporting or investing.

Licensing vs exporting, joint venture or subsidiary: when a licence is the better route

A technology licence lets an Indian company use your patents, designs and know-how to make and sell products in return for fees and royalties; you keep ownership, and the licensee builds the plant and carries the market risk. Technology transfer in India, in this sense, is a contract, not an investment.

Licensing vs joint venture. A licence earns less of the value than a venture or a subsidiary, but it puts no capital at risk and can be a first stage: license first, then buy or build once volumes justify it. The equity routes are compared in India entry strategy: joint venture, acquisition or greenfield; the manufacturing variants, including contract manufacturing, are in wholly owned plant, joint venture or contract manufacturing. For how the licence fits a wider European entry, see India for European companies: entry, structuring and the EU–India deal.

A licence fails when the edge is tacit know-how that only your engineers can apply, when the licensee could become a competitor outside India, or when your brand's reputation depends on quality you cannot inspect. Check the licensee as hard as you would a distributor (finding and checking an Indian partner).

Royalty rates and structures: how to price a technology licence

Until December 2009, Indian licensees needed Ministry of Commerce and Industry approval to pay royalties above 5% of domestic sales or 8% of exports, or lump sums above USD 2 million; those limits were removed with effect from 16 December 2009, by an amendment gazetted on 5 May 2010 [1][2]. There is no official benchmark rate for technology licensing now: the royalty is the share of the extra margin your technology earns the licensee that you can negotiate. If the licensee is a group company, the rate must be at arm's length under India's transfer-pricing rules [3]; where the IP should sit for tax is covered in DEMPE and India: where should your IP sit?.

Fees for technical services are payments for managerial, technical or consultancy services, including sending personnel; royalty under Indian tax law covers know-how, patents, designs and the right to use software, including lump sums [8].

FEMA: no approval and no cap, but the bank needs tax paperwork

Royalty and technical-fee remittances are current-account transactions that the licensee's bank can make without government or RBI approval [1][2]. The exception to plan for: consultancy services bought from abroad above USD 1 million per project (USD 10 million for infrastructure projects) need prior RBI approval, so a large engineering-services contract alongside the licence should be priced and scoped with that limit in mind [2].

Before each payment the licensee files Form 145 and, once its payments to you exceed INR 5 lakh in the tax year, obtains an accountant's certificate in Form 146 (the successors to Forms 15CA and 15CB), unless it holds a lower-withholding certificate [9].

Fees for technical services and royalties: what the licensor keeps after Indian tax

India taxes royalties and technical fees paid to a foreign company at 20% of the gross, with no deduction for your costs, plus a 2% surcharge where your Indian income exceeds INR 1 crore (5% above INR 10 crore) and 4% cess: 20.8%–21.84% [4][10]. The licensee withholds it when it pays or credits you [11]. With a tax residency certificate and Form 41, filed online before the first payment, the treaty rate applies instead: 10% for a German licensor, but 20% for a Danish or Italian one [5][6]. The full grid by country is in India withholding tax rates 2026 and how to repatriate profits.

Two drafting points change the figures. If the licence says royalties are paid "net of Indian tax", the licensee must gross up and bear the tax on the grossed-up amount [11]. And whether the Indian tax is fully credited at home depends on your home country's credit rules.

GST is separate: the Indian licensee pays IGST on imported licences and services under reverse charge and can normally take credit for it, so it does not reduce your royalty [7][12]. Rates and registration are in GST for foreign companies selling into India. Trade agreements do not change royalty tax, which is set by the Income-tax Act and the tax treaty; the EU–India free trade agreement, concluded in January 2026, is not yet signed or in force [13].

Getting paid: currency, security, reporting and audit

• Currency. Invoice the technical fee and the minimum royalty in euros. A running royalty is usually computed on rupee sales; agree the conversion date and rate in the contract.
• Reporting. Quarterly royalty statements by product and customer, signed by a director, with payment due a fixed number of days later.
• Audit. An annual right to send an independent accountant, with the licensee paying the audit and interest if it under-reported by more than an agreed margin.
• Security. Take the technical fee in milestones before each documentation package; consider minimums paid quarterly in advance, or a standby letter of credit or bank guarantee, and ask early what the licensee's bank can issue.
• Remedies. Late-payment interest, suspension of technical support, and termination with return of all documentation.

Protecting the technology: patents, know-how and brand

A patent licence is valid only in writing, and should be registered with the Patent Office, because an unregistered licence is not admitted as evidence of the interest unless the Controller or court directs otherwise [14]. Both the patentee and every Indian licensee must file a Form 27 working statement, saying whether each patent was worked in India, once every three financial years; for patents granted before April 2023 the first was due by 30 September 2026, extendable to 30 June 2027 [15] (see Form 27 patent working statements).

Licensing also answers a risk: three years after grant, any interested person can apply for a compulsory licence if the invention is not worked in India, is not available at a reasonably affordable price or does not meet the public's reasonable requirements [16]. Competition law does not stop you imposing reasonable conditions needed to protect your patent, design or trademark rights; restraints beyond that are tested for their effect on competition in India [17].

Unpatented know-how is protected only as far as your contract and your controls reach (see protecting trade secrets and know-how in India); if the licence includes your brand, apply for the Indian trademark first (trademark application in India for foreign brand owners).

Agree who owns improvements, and if the licensee wants to develop the next generation with you, public co-funding may be available (joint R&D funding open to European companies).

Worked example (illustrative)

Hypothetical; rounded exchange rates, October 2026: INR 107 = EUR 1. A German maker of packaging machinery licenses the design and manufacturing know-how for one machine range to an unrelated Indian manufacturer for seven years, exclusive in India (see the Germany–India corridor). Terms (our assumption): technical fee EUR 600,000 (INR 6.42 crore) in milestones; running royalty 4% of net sales; minimum royalty EUR 250,000 a year from year 2, invoiced in euros. Sales are the licensee's forecast (our assumption). The licensor has a German tax residency certificate and files Form 41.

The domestic rate is 20% × 1.02 (surcharge, as the licensor's Indian income is between INR 1 crore and INR 10 crore each year) × 1.04 (cess) = 21.216% [4][10].

What the numbers show. - The paperwork is worth about EUR 62,900 a year by year 5 (118,968 − 56,075). - The minimum did its job in year 2, lifting EUR 149,533 to EUR 250,000. - Rupee risk sits with you on the running royalty. If the rupee is 5% weaker at payment (INR 112.35, our assumption), the year-5 royalty is EUR 534,045, or EUR 26,702 less; the euro minimum protects only the floor, so consider a per-unit royalty in euros or an agreed conversion band. - Audit pays for itself. A 10% under-report of year-5 sales would cost EUR 56,075. - A "net of tax" clause shifts the cost. The licensee would gross up INR 6 crore to INR 6.67 crore and bear about EUR 62,300 of Indian tax [11].

Risks and common mistakes, ranked

1. Invoicing before the tax residency certificate and Form 41 are filed: 20.8%–21.84% withheld instead of 10% (21.216% in the example).
2. A royalty base the licensee controls: loose "net sales", sales through its own affiliates, no audit right.
3. Exclusivity without a minimum: a licensee that does not perform blocks India for years.
4. Handing over know-how before it is protected: no written, registered licence; weak confidentiality controls.
5. Rupee-only economics: no euro floor on fees or minimums.
6. A group licensee paying a rate that is not at arm's length [3].
7. Forgetting Form 27, which falls on the licensee as well as on you [15].

Checklist to forward internally

• Export, licence, joint venture and subsidiary compared on our own numbers
• Licensee checked: filings, litigation, sanctions, references, plant visit
• Technology mapped: Indian patents, designs, know-how, trademark; export-control classification checked at home
• Royalty base, rate, euro minimums and fee milestones agreed
• Tax residency certificate for the year and Form 41 filed before the first invoice; withholding and gross-up clause agreed
• Licensee's bank paperwork (Forms 145 and 146) and GST reverse charge settled with the licensee
• Reporting, audit, late-payment interest, security and termination remedies in the contract
• Patent licence signed and registered; Form 27 calendar for us and the licensee
• Ownership of improvements agreed; home-country credit for Indian tax checked

How ATB Corporate can help

ATB Corporate advises companies and investors on entering, structuring and operating in India and the UAE: choosing the entry route and holding structure, tax and exchange-control planning, regulatory compliance, and setting up and running the local business. To discuss your plans, contact ATB Corporate.

FAQ

Is there a limit on royalty payments from India to a foreign licensor?

There is no legal limit on royalties an Indian company pays to an unrelated foreign licensor: the approval thresholds of 5% of domestic sales, 8% of exports and USD 2 million for lump sums were removed with effect from December 2009 [1][2]. A group licensee must still pay an arm's-length rate [3], and consultancy services above USD 1 million per project need RBI approval [2].

What royalty rate should I charge an Indian licensee?

The royalty rate for an Indian licensee is a negotiated share of the extra margin your technology earns it, as there is no official benchmark. Most licences combine a technical fee for the transfer, a running royalty on net sales and a minimum annual royalty in euros, so that you are paid even if the licensee's sales are slow.

Licensing vs joint venture in India: which earns more?

A joint venture usually earns more of the value than a licence, because you share in the profit, but it needs capital and means shared control. A licence earns fees and royalties with no capital at risk, which suits a technology owner testing the market or one that does not want to run a plant.

How much tax does India withhold on royalties paid to a German company?

India withholds 10% on royalties and technical fees paid to a German company that gives the Indian payer a tax residency certificate and Form 41, and 20% plus surcharge and cess (20.8%–21.84%) without them [4][5][6]. The tax is on the gross amount, with no deduction for the licensor's costs.

Who pays GST on royalties paid to a foreign licensor?

The Indian licensee pays GST on royalties to a foreign licensor, under reverse charge, and can normally take credit for it against its own GST [7][12]. The foreign licensor does not add Indian GST to its invoice for this.

Should the minimum royalty from an Indian licensee be in euros or rupees?

The minimum royalty from an Indian licensee is better set in euros, because the guaranteed part of your income then carries no rupee risk, while the running royalty can stay a percentage of rupee sales converted at an agreed rate on the payment date. In the worked example, a rupee 5% weaker at payment would cut the year-5 running royalty by EUR 26,702 but leave a euro minimum untouched.

Related reading

• From pilot to paid contract: selling technology to Indian companies
• India manufacturing entry for foreign companies
• Tax, transfer pricing and FEMA for foreign manufacturers in India
• Industrial machinery in India
• FEMA advisory
• India tax advisory
• Form 27 patent working statements: what foreign patentees and Indian licensees must file

Sources

1. Reserve Bank of India, A.P. (DIR Series) Circular No. 52, "Current Account Transactions – Liberalisation": item 8 of Schedule II to the FEMA (Current Account Transactions) Rules 2000 omitted by G.S.R. 382(E) of 5 May 2010 (13 May 2010) — https://rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=5677 (accessed 16 October 2026)
2. Reserve Bank of India, Foreign Exchange Management (Current Account Transactions) Rules 2000, text updated to 30 June 2023 (Schedule II item 8 omitted by G.S.R. 382(E) of 5 May 2010 with effect from 16 December 2009; Schedule III item 2(iii), consultancy services) (30 June 2023) — https://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=5084 (accessed 20 October 2026)
3. Income Tax Department, Income-tax Act 2025, s.163 (international transaction; intangible property, including know-how) (2026) — https://www.incometaxindia.gov.in/w/section-163-83 (accessed 16 October 2026)
4. Income Tax Department, Income-tax Act 2025, s.207 (s.207(2): royalty and fees for technical services of a foreign company at 20%; s.207(5): no deductions) (2026) — https://www.incometaxindia.gov.in/w/section-207-78 (accessed 16 October 2026)
5. Income Tax Department, "Tax rates — DTAA v. Income-tax Act" (royalties and fees for technical services: Germany, France, Netherlands, Spain, Switzerland and Sweden 10%; Denmark and Italy 20%) (2026) — https://www.incometaxindia.gov.in/w/%E2%80%8Btax-rates-dtaa-v.-income-tax-act (accessed 20 October 2026)
6. Income Tax Department, Income-tax Act 2025, s.159(4) and (8) (treaty relief where more beneficial; tax residency certificate and prescribed information) (2026) — https://www.incometaxindia.gov.in/w/section-159-89 ; Income Tax Department, Form 41 FAQs (Form 41 succeeds Form 10F; online only; no PAN needed) (2026) — https://www.incometaxindia.gov.in/documents/d/guest/form-41-faqs (both accessed 16 October 2026)
7. GST Council, Notification No. 10/2017-Integrated Tax (Rate), Sl. No. 1 (services from a non-taxable territory: tax paid by the recipient), as amended up to 1 April 2019 (28 June 2017) — https://gstcouncil.gov.in/sites/default/files/2024-02/10-reverse_charge-igst-01.04.2019.pdf (accessed 16 October 2026)
8. Income Tax Department, Income-tax Act 2025, s.9 (s.9(6): royalty, including lump sums and the right to use software; s.9(7): fees for technical services) (2026) — https://www.incometaxindia.gov.in/w/section-9-1 (accessed 16 October 2026)
9. Income Tax Department, Income-tax Rules 2026, rule 220 (Forms 145 and 146; INR 5 lakh threshold) (2026) — https://www.incometaxindia.gov.in/w/rule-220-1 ; Income Tax Department, FAQs on forms as per the Income-tax Rules 2026 (Form 145 ↔︎ 15CA, Form 146 ↔︎ 15CB) (2026) — https://www.incometaxindia.gov.in/w/faqs-on-forms-as-per-income-tax-rules-2026-1 (both accessed 16 October 2026)
10. Income Tax Department, First Schedule to the Finance Act 2026 (Part I para F and Part II: surcharge on foreign companies 2% above INR 1 crore, 5% above INR 10 crore) (2026) — https://www.incometaxindia.gov.in/w/first-schedule-104 ; Income Tax Department, "Foreign company" tax rates (health and education cess at 4% of tax and surcharge) — https://www.incometaxindia.gov.in/en/foreign-company (both accessed 16 October 2026)
11. Income Tax Department, Income-tax Act 2025, s.393(2) Table Sl. No. 17 (withholding on payments to non-residents at rates in force) and s.393(10) (grossing up where the payer bears the tax) (2026) — https://www.incometaxindia.gov.in/w/section-393-6 (accessed 16 October 2026)
12. Central Goods and Services Tax Act 2017 (Act 12 of 2017), s.16(1) (eligibility for input tax credit), Gazette of India text, hosted by the High Court of Tripura (12 April 2017) — https://thc.nic.in/Central%20Governmental%20Acts/Central%20Goods%20and%20Services%20Tax%20Act,%202017.pdf (accessed 16 October 2026)
13. European Commission (DG Trade), "EU–India agreements" (negotiations concluded 27 January 2026; proposals for signature and conclusion sent to the Council, 11 September 2026) — https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/india/eu-india-agreements_en (accessed 16 October 2026)
14. Office of the Controller General of Patents, Designs and Trade Marks, Patents Act 1970, s.68 (licence to be in writing) and s.69 (registration; s.69(5) unregistered documents not admitted in evidence) — https://ipindia.gov.in/acts/patent-act-1970/section-68 ; https://ipindia.gov.in/acts/patent-act-1970/section-69 (both accessed 16 October 2026)
15. Office of the Controller General of Patents, Designs and Trade Marks, "Frequently Asked Questions (FAQs) on Form 27" (26 August 2024) — https://ipindia.gov.in/frontend/pdf/patents/1001_1_final_faqs_form-27_26thaugust2024.pdf (accessed 16 October 2026); Ministry of Commerce and Industry (DPIIT), Patents (Amendment) Rules 2024, G.S.R. 211(E), rule 131(2) (statement once in respect of every period of three financial years) and Form 27 (worked or not worked; reasons; availability for licence), Gazette copy on the Patent Office website (15 March 2024) — https://ipindia.gov.in/storage/uploads/docs-operator/17e7b633-4b6f-4737-9408-8c8fe72c9cfc.pdf (accessed 20 October 2026)
16. Office of the Controller General of Patents, Designs and Trade Marks, Patents Act 1970, s.84(1) (compulsory licence three years after grant) — https://ipindia.gov.in/acts/patent-act-1970/section-84 (accessed 16 October 2026)
17. Competition Commission of India, The Competition Act 2002, s.3(4) and s.3(5)(i) (2002, as published by the CCI) — https://www.cci.gov.in/images/legalframeworkact/en/the-competition-act-20021652103427.pdf (accessed 16 October 2026); as amended by the Competition (Amendment) Act 2023 (No. 9 of 2023), s.4 (11 April 2023) — https://www.cci.gov.in/images/legalframeworkact/en/the-competition-amendment-act-20231681363446.pdf (accessed 16 October 2026), in force from 18 May 2023 under Gazette of India S.O. 2228(E) (18 May 2023) — https://egazette.gov.in/WriteReadData/2023/245953.pdf (accessed 20 October 2026)

Disclaimer: This article is general information, not tax or legal advice; the worked example is hypothetical, and rules on withholding, GST and exchange control change, so check the current rules and take advice on your facts before acting.