- Franchisees can claim GST input tax credit to cut costs
- Royalty, rent, and salaries are tax-deductible expenses
- Depreciation on assets like equipment reduces taxable income
- MSME & Startup India schemes offer rebates and exemptions
- Proper record-keeping ensures maximum tax savings
Starting a franchise in India isn’t just about using a popular brand name — it also comes with several tax benefits that can reduce costs and improve profitability for entrepreneurs. Whether it’s claiming deductions on expenses, enjoying GST input credits, or leveraging depreciation benefits on assets, the Indian franchise model offers financial advantages that many new business owners overlook. According to IBEF, India’s franchise industry is growing at 30–35% annually, making tax savings an essential part of running a sustainable franchise business.
What Are Franchise Tax Benefits?
Franchise tax benefits are legal financial advantages available to franchise owners that help reduce taxable income and improve profitability. Since franchises operate under structured business models with clear compliance frameworks, they can claim deductions, credits, and exemptions more effectively than independent small businesses.
Tax Benefits for Franchise Owners in India
Franchise owners in India can claim tax deductions on expenses like rent, employee salaries, training costs, marketing, and even franchise fees as business expenses under the Income Tax Act, 1961. Additionally, GST input tax credit can be availed on eligible purchases, which reduces the overall tax burden and improves profitability.
1. GST Input Tax Credit (ITC)
- Franchisees can claim credit on GST paid for raw materials, advertising, equipment, or supplies.
- Example: If you collect ₹1,00,000 GST from customers but already paid ₹60,000 GST to suppliers, you only pay ₹40,000 net to the government.
2. Expense Deductions
Most franchise-related expenses are fully deductible:
- Royalty fees paid to the franchisor
- Salaries, rent, and electricity bills
- Advertising and branding campaigns
- Consultancy and training fees
This lowers taxable profits.
3. Depreciation Benefits
- Business assets like kitchen equipment, delivery vehicles, furniture, or IT systems depreciate in value each year.
- The Income Tax Act allows 15% depreciation on many such assets, directly reducing taxable income.
4. MSME & Startup India Benefits
If registered as an MSME, franchisees can access:
- Rebates under Section 80JJAA for job creation.
- Subsidised loan interest rates.
- Exemptions on certain profits under the Startup India Scheme (if eligible).
5. Loan Interest Deductions
- Franchise owners who borrow capital can claim deductions on loan interest paid to banks or NBFCs.
- Reduces tax liability while encouraging business expansion.
Example: A Franchise Owner’s Tax Savings
| Expense Type | Annual Spend (₹) | Benefit Type | Tax Savings (Approx.) |
| Royalty Fees | 5,00,000 | Expense Deduction | 1,25,000 |
| Advertising & Marketing | 3,00,000 | Expense Deduction | 75,000 |
| Equipment Purchase | 10,00,000 | Depreciation @ 15% | 1,50,000 |
| GST Paid on Supplies | 2,00,000 | Input Tax Credit | 2,00,000 |
| Loan Interest | 1,50,000 | Deduction | 37,500 |
Total Tax Savings: ₹5,87,500 in one year.
Franchise Taxation vs. Independent Business Taxation
| Category | Franchise Business | Independent Business |
| GST ITC Eligibility | High (structured) | Limited |
| Royalty Deductions | Yes | No |
| Advertising Costs | Shared with franchisor | 100% borne by the owner |
| MSME Benefits | Yes | Yes |
| Compliance Support | From franchisor | Self-managed |
Franchises enjoy an edge because compliance is often managed by the franchisor, reducing errors.
Common Mistakes Franchisees Make in Tax Filing
- Not claiming GST input credit.
- Forgetting depreciation adjustments.
- Mixing personal and business expenses.
- Ignoring MSME registration.
- Filing late — resulting in penalties.
How to Apply for Franchise Tax Benefits in India
Claiming franchise tax benefits is not automatic — you need to register, file, and maintain compliance properly. Here’s a simple roadmap:
Step 1: Register Your Business Properly
- Choose the right structure: Proprietorship, Partnership, LLP, or Private Limited Company.
- Apply for GST Registration if turnover exceeds ₹40 lakhs (₹20 lakhs for services).
- If eligible, also register under MSME Udyam.
Step 2: Maintain Accurate Records
- Keep all invoices, royalty fee receipts, advertising bills, and loan statements.
- Use digital accounting software like Tally, Zoho Books, or QuickBooks to avoid errors.
Step 3: Claim Input Tax Credit (GST ITC)
- While filing monthly/quarterly GST returns (GSTR-3B and GSTR-1), claim credit for GST paid on purchases.
- Match supplier invoices with GST filings to ensure no ITC is lost.
Step 4: Deduct Expenses in Income Tax Returns
When filing Income Tax Returns (ITR-3 or ITR-5, depending on your business type), deduct all eligible expenses:
- Royalty fees
- Rent & salaries
- Marketing & training costs
- Loan interest
- Depreciation on assets
Step 5: Leverage MSME & Startup Schemes
- If MSME is registered, claim benefits like interest subsidies and employment-linked deductions.
- For tech, education, or wellness franchises, apply under the Startup India Scheme for tax exemptions (via Startup India Portal).
Step 6: File Returns on Time
- GST Returns: Monthly/Quarterly, depending on turnover.
- Income Tax Returns: By July 31st (Individuals & LLPs), September 30th (Companies).
- Filing late can cancel benefits and add penalties.
Example: A franchise café owner registered under GST and MSME can claim:
- GST ITC on food supplies
- Salary & rent deductions
- Depreciation on kitchen equipment
- MSME-linked tax rebates
This structured compliance reduces overall tax by lakhs annually.
Key Takeaways
- Franchise Fees Deduction – Initial franchise fees and royalty payments can be claimed as business expenses under the Income Tax Act.
- GST Input Credit – Franchisees can avail input tax credit (ITC) on GST paid for purchases like raw materials, equipment, or services.
- Depreciation Claims – Assets such as furniture, machinery, and IT equipment can be depreciated annually to lower taxable income.
- Operational Expenses – Rent, salaries, utilities, training, and marketing expenses are deductible, reducing the overall tax burden.
- Loan & Interest Benefits – Interest paid on business loans for franchise setup is eligible for tax deduction, improving cash flow.
Conclusion
Franchising in India isn’t just a safer business bet — it’s also a financially smarter choice when you take advantage of available tax benefits. By claiming GST credits, expense deductions, MSME perks, and loan benefits, franchisees can save lakhs every year. The key lies in structured compliance, proper record-keeping, and timely filing. In 2025, with India’s tax ecosystem becoming increasingly digital, franchise owners who stay updated can build profitable and tax-efficient businesses.
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FAQs
Yes, royalty payments are considered business expenses and are deductible.
Yes, GST paid on raw materials, supplies, and advertising can be claimed as ITC.
Yes, MSMEs enjoy tax rebates, subsidised loan rates, and government incentives.
Yes, assets like kitchen equipment, vehicles, and IT systems qualify for depreciation under the Income Tax Act.
Savings depend on size, but mid-level franchisees can save ₹5–10 lakhs per year through deductions and credits.
