Is GST applicable on participation fees?
What are non-compete fees?
Is GST applicable to professional fees on Non-Compete agreement 
Let discuss:-
The Goods and Services Tax (GST) regime has significantly broadened the tax net by adopting an inclusive definition of "supply."
One such area of interest is the taxability of non-compete fees — consideration paid for agreeing to refrain from competing in business, or to abstain from certain activities.
This concept, though not new, continues to generate debate under GST.
Let understand first Statutory Provisions
Section 7(1)(a) of the CGST Act, 2017 defines "supply" to include “all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made for a consideration in the course or furtherance of business.”
Further Schedule II, Para 5(e) expressly classifies as supply of services:
> “Agreeing to the obligation to refrain from an act, or to tolerate an act, or to do an act.”
Thus, consideration paid under a non-compete agreement squarely falls within this ambit.
Classification and Rate
Service Code (SAC): 9997 (Other Miscellaneous Services).
Applicable GST Rate: 18% (standard service rate).
Judicial Precedents
Though much of the jurisprudence originates from the Service Tax era, its principles remain relevant under GST:
1. CCE vs. Gujarat State Fertilizers & Chemicals Ltd. (Supreme Court) – Non-compete fee considered a “declared service” as it involves an agreement to refrain from an act.
2. CIT vs. Guffic Chem Pvt. Ltd. (2011) 332 ITR 602 (SC) – While in the context of income tax (capital vs. revenue), the Court recognized non-compete fees as consideration for restrictive covenants.
3. Various AAR Rulings under GST – Have consistently held that payments under non-compete agreements are taxable as services.
Employer–Employee Dimension
A nuance arises where a non-compete fee is paid by employer to employee at the time of termination or resignation. If such payment is part of the employment contract, one may argue it falls under Schedule III (services by an employee to employer in the course of employment – not supply).
However, in most cases, separate contractual non-compete agreements are executed, making the fee taxable under GST.
Practical Implications
Businesses paying non-compete fees should gross-up agreements to account for GST at 18%.
The recipient of the fee must raise a tax invoice and discharge GST liability.
Input Tax Credit (ITC) eligibility for the payer depends on nexus with business operations.
Non-disclosure or incorrect structuring could lead to disputes and litigation.
Conclusion
The legislative intent is clear: non-compete fee is taxable under GST as a service of “agreeing to refrain from an act.” While the jurisprudence continues to evolve, businesses and professionals must adopt a conservative approach and ensure contractual clarity, proper invoicing, and GST compliance in all such arrangements.
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