Tds -non compete fee
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
09 August 2011
Is TDS applicable on Non compete fees paid?
If applicable under which section?
If applicable under which section?
09 August 2011
mention the correct nature of expenses
27 July 2025
Yes, **TDS is applicable on non-compete fees**.
---
### ✅ **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.
---
### ❌ 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.
---
### ✅ 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.
---
### ✅ **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.
---
### ❌ 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.
---
### ✅ 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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