Technology Transfer and Licensing

For promoting an industrial environment which accords priority to the acquisition of technological capability, foreign technology induction is encouraged both through FDI and through foreign technology collaboration agreements. These agreements are permitted either through the automatic approval route or with prior approval from the Government.

Automatic Route

The Reserve Bank of India accords automatic approval to all industries for foreign technology collaboration agreements subject to:

• The lump sum payments not exceeding US $ 2 Million;
• Royalty payable being limited to 5 per cent for domestic sales and 8 per cent for exports, subject to a total payment of 8 per cent on sales over a 10 year period; and
• The period for payment of royalty not exceeding 7 years from the date of commencement of commercial production, or 10 years from the date of agreement, whichever is earlier. These royalty limits are net of taxes and are calculated according to standard conditions.

For foreign technology agreements in respect of hotel and tourism related industries, automatic approval is granted if

• Upto 3% of the capital cost of the project is proposed to be paid for technical and consultancy services including fees for architecture, design, supervision, etc
• Upto 3% of the net turnover is payable for franchising and marketing/publicity support fee
• Upto 10% of gross operating profit is payable for management fee, including incentive fee.

Government Approval

Approval from the Government of India is necessary for the following categories of foreign technical collaboration agreements:

• Proposals attracting compulsory licensing;
• Items of manufacture reserved for the small-scale sector;
• Extension of foreign technology collaboration agreements (including those cases which may have received automatic approval in the first instance)
• Proposals not meeting any of the parameters for automatic approval.

It is permissible for an Indian Company to issue equity shares against a lump sum fee and royalty in convertible foreign currency already due for payment or repayment, subject to meeting all applicable tax liabilities and procedures