India Tax & Regulatory
Non-Compete Fee Taxation (Section 28(va))
Non-compete consideration is taxed as business income under Section 28(va), not capital gains — sellers should evaluate the differential tax impact before agreeing to the allocation split.
Seller Example
Promoter of a Jodhpur handicraft export business negotiating a ₹25 Cr sale with ₹2 Cr allocated as a non-compete fee has their tax advisor model the higher effective tax rate on that ₹2 Cr under Section 28(va) versus the long-term capital gains rate on the remaining ₹23 Cr, and negotiates a gross-up of the non-compete fee to ₹2.3 Cr to neutralize the incremental tax drag.