Tds -non compete fee

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Querist : Anonymous

Querist : Anonymous (Querist)

09 August 2011 Is TDS applicable on Non compete fees paid?
If applicable under which section?

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
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09 August 2011 mention the correct nature of expenses

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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27 July 2025 Yes, **TDS is applicable on non-compete fees**.

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### ✅ **Applicable Section:**

### 🔹 **Section 194J** – TDS on "Fees for Professional or Technical Services"

**Non-compete fees** are generally considered as payments for **professional services** or **compensation for not engaging in certain business activities**, and thus, **covered under Section 194J**.

* **Rate of TDS:**

* 10% (if paid to a resident)
* **Threshold:**

* TDS is applicable if the payment exceeds ₹30,000 in a financial year.

---

### ✅ **Also Supported by:**

#### 📌 **Section 28(va) of the Income Tax Act**:

This section deals with income from business or profession and includes:

> **"Any sum received or receivable under an agreement for not carrying out any activity in relation to any business..."**
> ➡️ i.e., **non-compete fee is treated as business income** in the hands of the recipient.

Since it’s a **taxable income**, TDS is applicable under **Section 194J** when paid to a resident.

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### ❌ If Paid to a Non-Resident:

* Then **Section 195** applies.
* TDS must be deducted **at applicable rates** under the Income Tax Act + DTAA (Double Taxation Avoidance Agreement), if applicable.

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### ✅ Summary:

| Payment Type | TDS Section | Rate | Remarks |
| ------------------------------ | ----------- | --------------- | ----------------------- |
| Non-compete Fee (Resident) | 194J | 10% | If exceeds ₹30,000 p.a. |
| Non-compete Fee (Non-Resident) | 195 | Depends on DTAA | Withholding required |

Let me know if you'd like a sample TDS calculation or clarification on the tax treatment in the hands of the recipient.

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