Quick Summary: The Franchise Agreement Checklist for India
India has no dedicated franchise law. Your agreement runs under the Indian Contract Act, 1872, so the document is your only real protection. Check these nine things before you sign:
Franchise fee: one-time, stated separately from setup cost
Royalty and its base: usually 3% to 10%, charged on gross billing, net sales, or your purchases
Term: commonly 5 to 10 years, long enough to recover your fit-out
Renewal: conditions and fee, written down now
Lock-in: commonly 12 to 36 months, with a stated way out
Territory: set by pin code or a map, not "surrounding area"
Supply obligations: who you must buy from, and how prices change
Termination and cure period: 30 days to fix a mistake is fair, 15 is tight
Exit costs: what you lose, and get back, if it ends early
Then add 18% GST on the fee and royalty, 10% TDS you deduct, and state stamp duty. Then have a lawyer read it.
Two people signed franchise agreements in Indore in the same month. One asked why royalty was charged on gross billing and got it changed to net of aggregator commission. The other signed in twenty minutes, then found out in month nine what that difference costs.
Same brand. Same city. The gap was the paper.
What a Franchise Agreement in India Actually Is
This section tells you what the document is and why nobody is checking it for you.
A franchise agreement is a contract between the brand (the franchisor) and you (the franchisee). It sets out what you can use, what you pay, what you must do, and what happens when it ends.
Here is the part first-time buyers miss. India has no franchise-specific law and no franchise regulator, so no authority reviews your agreement before you sign. Protection comes from several statutes working together: the Indian Contract Act 1872, Trade Marks Act 1999, Competition Act 2002, Consumer Protection Act 2019 and the Indian Stamp Act 1899.
The document is exactly as fair as the brand chose to make it. If a promise is not in it with a number, a date, or a defined scope, treat it as if it does not exist.
The 9 Franchise Agreement Clauses That Decide Whether You Make Money
This section gives you the fair version of each clause and the version that should stop you.
Most guides tell you to "read the fees carefully". Here is what you are actually comparing.
Clause | Fair version | Walk away version |
Franchise fee | One-time, on its own line, separate from setup cost | Bundled into one "total investment" number with no break-up |
Royalty and base | 3% to 10% for most categories, on net sales after GST, discounts and aggregator commission | On gross billing, or on your purchases, with "revenue" left undefined |
Term | 5 to 10 years, longer than your payback period | 2 to 3 years when your fit-out takes longer to recover |
Renewal | Automatic if you have paid on time and met standards, fee stated today | "At the sole discretion of the franchisor", fee decided later |
Lock-in | 12 to 36 months, with a written exit route after it ends | Locked for the full term with no exit at all |
Territory | Exclusive, set by pin code or a mapped radius, delivery orders in your area credited to you | "Surrounding area", no exclusivity, or the brand’s app selling into your zone |
Supply obligations | Approved vendor list, prices reviewed yearly, costing disputes allowed | One mandated supplier, prices changed whenever the brand likes |
Termination and cure | Same grounds for both sides, 30 day cure period for anything fixable | Brand can end it on 15 days notice, you have no exit right |
Exit costs | Fair market buyout, or a stated refund formula if they end it without cause | You lose the fee, the fit-out, and still owe damages |
Three of these need more than a table row.
Royalty: the base matters more than the percentage
A 5% royalty on gross billing can cost more than an 8% royalty on net sales. The base is where the money moves.
Ask for the agreement to define revenue in writing. It should say whether GST, discounts, returns and delivery platform commission come out before royalty is calculated.
For a food outlet on Swiggy or Zomato, that one definition can move your margin by a percentage point or two.
Territory: delivery apps have made this clause harder
An exclusive territory means the brand cannot open, or licence, another outlet inside your area. Written loosely, that protection is worth very little.
Get the boundary in pin codes or a radius in kilometres, never as "the nearby market"
Ask whether the brand’s own app can sell into your area, and whether you are credited
Ask what happens if another franchisee’s delivery zone overlaps yours on an aggregator
Check the carve-outs. Airports, malls and cloud kitchens are often excluded quietly
Termination: read this clause as if you have already made a mistake
You will make an operational mistake at some point. The cure period decides whether it costs you a warning or your whole investment.
A fair clause gives you 30 days to fix anything correctable and applies the same grounds to both sides. A one-sided clause lets the brand terminate on short notice while you stay locked in.
Check the wind-down timeline too. Signage removal in 30 to 45 days and de-branding in 60 to 90 days is normal. Being told to shut everything in 15 days is not.
Royalty, Tax and the Real Franchise Investment Behind the Brochure
This section covers the costs most first-time buyers discover only after signing.
GST at 18% on the fee and the royalty
Franchise fees and royalty payments attract GST at 18%. A Rs 10 lakh franchise fee is a Rs 11.8 lakh cash outflow on day one.
You can usually claim input tax credit if you are registered, but the cash leaves your account first. Build it into your working capital.
TDS at 10% that you have to deduct
Under Section 194J you deduct 10% TDS on royalty paid to a resident franchisor and deposit it yourself. That is your compliance duty, not the brand’s. If the franchisor sits outside India, withholding runs under Section 195 at treaty rates.
Stamp duty, and why registration is not the issue
Franchise agreements are not filed with any central franchise registry. They do need stamping under the state stamp act where you sign.
Rates vary widely. Some states charge a flat Rs 100 to Rs 500, others charge on value, with Maharashtra commonly around 0.25% to 0.5% of consideration.
An under-stamped agreement is not void, but a court or arbitrator can refuse to look at it until you pay the shortfall and a penalty. That is the exact moment you need it to work.
Licences You Must Hold Before Buying a Franchise in India
This section clears up the most expensive assumption in Indian franchising.
The franchisor’s licences do not cover your outlet. You apply, you hold, you renew, and you carry the penalty if something is wrong.
Food and beverage: FSSAI in your outlet’s name, Basic Registration for small outlets and a State Licence once turnover crosses Rs 12 lakh, plus health and fire clearances
All retail outlets: shop and establishment registration, municipal trade licence, GST registration
Education and coaching: state education approvals where they apply, plus premises fire safety
Health, wellness and salons: practitioner certifications, biomedical waste authorisation
Everyone: professional tax, PF and ESIC once you cross the staff thresholds
One more check takes ten minutes. Search the brand’s trademark on the IP India portal and confirm it is registered, in the right class, and owned by the entity signing your agreement.
What Happens If the Franchise Agreement Is Broken
This section tells you what your options look like, and how long each one takes.
Knowing these timelines changes how hard you negotiate the clauses above.
Legal notice: usually a 7 to 30 day window for the other side to respond
Mediation or arbitration: often 1 to 6 months, and usually what your agreement forces on you
Consumer court: roughly 3 to 12 months, with district forums hearing claims up to Rs 50 lakh and state commissions from Rs 50 lakh to Rs 2 crore
Civil court: 1 to 3 years or more, which is why almost nobody gets there
So check two things now. The arbitration seat should be an Indian city you can reach, because a Singapore or London seat can cost more than the outlet. And check who pays arbitration costs, because loading them onto you is a quiet way of making disputes impossible.
Human Checks Before You Sign Any Franchise Agreement
This section covers three things a lawyer cannot do for you.
Talk to franchisees the brand did not choose for you
Ask for a full list of operating outlets, then call three yourself. Pick ones running longer than a year, and one that has closed if you can find it. Ask them the only question that matters. Would you sign this agreement again.
Get every verbal promise written in
Marketing support, training days, a launch budget, a promised second outlet. If it was said in a meeting and is not in the agreement, it is not a commitment. Ask for it as an annexure. A brand comfortable saying it out loud should be comfortable signing it.
Have a local lawyer read it before you sign
The agreement was drafted by the franchisor’s lawyer to protect the franchisor. That is normal. It just means you need your own reading.
A lawyer who has seen a few franchise agreements costs far less than one dispute. This applies to a Rs 8 lakh kiosk as much as a Rs 2 crore deal, because the weak clauses are the same at every level.
This article is educational content, not legal advice. Have a qualified lawyer review your agreement before you sign it.
Franchise Agreement Checklist: Your 20-Point Scorecard
Score one point for each yes. Use this before you transfer any money.
# | Check | Yes / No |
1 | The signing entity is the same one that owns the trademark | |
2 | The trademark is registered, and in the correct class | |
3 | Franchise fee, setup cost and working capital are listed separately | |
4 | Royalty percentage and its exact base are defined in writing | |
5 | Delivery and online orders in my area are addressed | |
6 | Territory is set by pin code or a map | |
7 | Term is longer than my expected payback period | |
8 | Renewal conditions and renewal fee are stated now | |
9 | Lock-in period and post lock-in exit route are clear | |
10 | Cure period is at least 30 days for fixable breaches | |
11 | Termination grounds apply to both sides | |
12 | Exit or buyout formula is written down | |
13 | Supplier list and price revision method are stated | |
14 | Training days, marketing support and field visits have numbers attached | |
15 | Non-compete after exit is 24 months or less, and limited to my area | |
16 | Arbitration seat is an Indian city I can reach | |
17 | The brand shared a franchisee list I could call freely | |
18 | Every verbal promise is now in the document | |
19 | I know which licences I must obtain myself | |
20 | A lawyer has read the full agreement |
16 or more: reasonable footing, proceed with your lawyer’s notes
11 to 15: fixable, but negotiate before signing
10 or below: do not sign, and keep looking at other franchise opportunities in India
Final Thought on Choosing the Best Franchise in India
The best franchise in India for you is not the one with the strongest brochure. It is the one whose agreement you can read without flinching.
A franchise agreement is not the paperwork that follows your decision. It is the decision. Every number in the brochure counts only if it appears in this document with specifics attached. Read it slowly, ask for vague lines to be rewritten, and never sign without your own legal review.
Franchise Agreement FAQs
Is a franchise agreement legally binding in India without registration?
Yes. It is binding under the Indian Contract Act, 1872, and needs no registration with any franchise authority. It does need correct stamp duty under your state’s stamp act, or it may not be accepted as evidence in a dispute until you pay the shortfall and penalty.
What is a normal royalty in a franchise business in India?
Most categories fall between 3% and 10% of sales. Quick service food often sits at 4% to 8%, retail around 5% to 10%, education higher at 8% to 15%. The base matters more, meaning whether it is charged on gross billing or net sales.
Can a franchisor terminate my franchise agreement anytime?
Only on the grounds written into your agreement. Check the termination clause for the exact triggers, the notice period, and the cure window. A fair agreement gives you around 30 days to fix a correctable breach and applies the same grounds to both sides.
Can I negotiate a franchise agreement before signing?
Often, yes. Royalty and brand standards rarely move, but territory boundaries, cure periods, renewal fees and exit terms frequently do. Ask before you sign, not at renewal. A brand that refuses to clarify even minor wording is telling you how disputes will go.
Do I pay GST on the franchise fee?
Yes. Franchise fees and royalties attract GST at 18%. You can generally claim input tax credit if you are GST registered, but the cash goes out first, so include it in your working capital planning from day one.
Next Steps Before You Sign
Do these five things in this order.
Ask the brand for the full agreement and a written break-up of franchise fee, setup cost, working capital and royalty base. A summary sheet is not enough.
Run the 20-point scorecard above and mark every blank or vague clause.
Check the trademark on the IP India portal, and call three existing franchisees from a list you chose.
Send the agreement and your marked list to a local lawyer. Budget two weeks.
Compare the terms against two other brands before you commit. Start with our guide to FOFO, FOCO and COCO franchise models, then check investment tiers in our roundup of the best franchise business opportunities in India.
When you are ready to compare real terms, browse verified franchise opportunities on FranchiseFilter. We verify what brands tell us before they appear, so you can ask for the actual agreement early instead of late. Still choosing a category? Our franchise business in India listings let you filter by budget before you shortlist any franchise investment.
FranchiseFilter is a discovery platform. We verify the information brands provide, and we do not guarantee investment returns. Outcomes depend on location, footfall, and how the outlet is run.