Consumer companies to face 15-30 bps cost surge on 20% royalty levy: Nomura

Withholding tax rate has been raised to 20 percent (from 10 percent currently) for royalty and fees for technical services

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26 Aug, 2025 12:21

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The increase in withholding tax rate on royalty and technical services fee paid by Indian entities to respective multinationals will bump up the costs for consumer companies by 15-30 basis points, according to Nomura.

This will, in turn, impede their margins that were recovering from the impact of spike in cost of raw materials last year.

These fees are paid by companies like Hindustan Unilever, Colgate Palmolive, Nestle India, Page Industries, and Jubilant Foodworks to get access to their knowledge, R&D, and intellectual properties.

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As a part of the Finance Bill 2023, the government has decided to double the rate of tax on royalties and technical fees to 20 percent.

The change will apply to entities whose parent companies operate in jurisdictions without a tax treaty with India, noted Nomura, including those registered in tax havens like the Cayman Islands and the British Virgin Islands.

The tax rate will be 15 percent on royalty and fees for technical services from countries like the US and the UK, which have a tax treaty with India.

Entities with parent companies registered in countries such as Switzerland and Japan, which have double tax avoidance trade treaties with India, will still be subject to 10 percent withholding tax rate.

"While we await further clarity, our initial assessment suggests an increase of 15-30 basis points," Nomura said.

The payment of any royalty in the first place is a matter of contention for the Dalal Street. The Street verdict is that royalty fees eat into the earnings available to shareholders, and solely benefits the parent. In February, Hindustan Unilever decided to increase its payment to Unilever Plc by 80 basis points after which the stock closed 4 percent lower.

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