GST on Non-Compete Fees for Export of Services
Non-compete fees paid by foreign entities for services outside India qualify as zero-rated exports, while domestic portions remain taxable.
- Ruling
- Advance Ruling No. 2/ARA/2026, dated 09.01.2026
- Dated
- 09 Jan 2026
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- The company asked if non-compete fees are considered export of services.
- The Authority ruled that fees for foreign competition qualify as zero-rated.
- Fees for refraining from competition within India are subject to GST.
- The total fee must be split between domestic and international components.
In short
The company asked the Authority for Advance Ruling (ARA) whether receiving a fee for agreeing not to compete with a business counts as an export of services under the Goods and Services Tax (GST) law. Because the agreement involved both foreign and Indian entities, the Authority had to decide if the entire fee was tax-free or if part of it was taxable in India.
What has changed
How it worked before
Businesses were often unsure if non-compete fees should be treated as a single service or if they could be split based on where the business activity is protected.
What has changed
The Authority decided that non-compete fees can be split. The portion related to protecting a foreign business qualifies as an export of services with a 'Nil' GST rate, while the portion protecting an Indian business is taxable. You must now clearly separate these components in your agreements to claim the correct tax treatment.
Who this affects
Business owners or individuals who receive non-compete fees from foreign companies after selling shares or exiting a business.
An example
Imagine a consultant sells their shares in an Indian firm and signs a non-compete agreement with a US buyer. The agreement covers both the US market and the Indian market. Based on this ruling, the consultant would pay zero GST on the portion of the fee for the US market but must pay GST on the portion for the Indian market. They must clearly define these two parts in their contract to support this tax split.
What you should do
If you receive similar fees, you should document the split between domestic and international components clearly. Remember that an Advance Ruling only binds the company that asked and its specific tax office; it is not a general law that automatically applies to your business.
If you do nothing
If you treat the entire fee as an export without a valid split, a tax officer may disagree and demand payment of GST on the domestic portion. This could lead to interest charges and penalties for unpaid tax. You cannot rely on this specific ruling to defend your position if your facts or tax office differ.
The terms explained
- Zero-rated supply
- A supply of goods or services that is taxed at a rate of zero percent, meaning no tax is collected but you can still claim credit for taxes paid on business inputs.
- Non-compete fee
- A payment made to an individual or company in exchange for their agreement not to start or join a competing business for a set period.
- Export of services
- Services provided from India to a recipient located outside India, where the payment is received in foreign currency and the supplier and recipient are not merely establishments of the same person.
The ruling in detail
Authority for Advance Ruling
M/s JOLARPETTAI VEERAMUTHU SREEDHAR
Advance Ruling No. 2/ARA/2026, dated 09.01.2026 · Tamil Nadu
Questions before the authority
- Whether the place of supply of service rendered by the Applicant is outside India?
- Whether the service rendered by the Applicant can be deemed to be 'Export of Services' under the IGST Act, 2017 and therefore be a zero-rated supply?
- Whether the service rendered by the applicant shall attract payment of any Goods and Service Tax (GST) and if yes, then amount of GST that is payable by the applicant considering the fact that major portion of the service is rendered outside India?
Facts
The applicant, a shareholder in M/s SmartPoint Technologies Pvt Ltd, entered into a non-compete and non-solicitation agreement with M/s RFXCEL Corporation (USA) and M/s Antares Vision India Pvt Ltd upon the sale of his shares. Under this agreement, the applicant receives a fee for refraining from competing with the businesses of the purchasers in various jurisdictions. The applicant sought a ruling on the taxability and place of supply of this non-compete fee, specifically regarding whether it qualifies as an export of services.
Ruling
| Question | What the authority ruled |
|---|---|
| Place of supply | Not a matter under which Advance Ruling can be sought The authority stated this does not fall under the matters for which a ruling can be sought under Section 97(2) |
| Export of services status | Qualifies as export of services Applicable to the service rendered to M/s RFXCEL Corp, attracting Nil rate of GST |
| Taxability of non-compete fee | Taxable as inter-state or intra-state supply Applicable to the portion of services rendered in India, while the export portion is zero-rated |
The Authority ruled that the non-compete service provided to the foreign entity (RFXCEL Corporation) qualifies as an export of service, attracting a 'Nil' rate of GST. However, the portion of the service related to refraining from competition with entities operating in India is subject to GST as either inter-state or intra-state supply. The applicant is required to pay tax on the portion of the fee attributable to services rendered within India.
Reasoning
The Authority determined that the act of refraining from an act is a 'Supply of Service' under Clause 5(e) of Schedule II of the CGST Act. For the portion provided to the foreign entity, the conditions of Section 2(6) of the IGST Act for 'export of services' were satisfied, rendering it a zero-rated supply. For the domestic portion, the Authority applied the provisions of Section 7 and Section 8 of the IGST Act to determine the nature of the supply as inter-state or intra-state, making it liable to GST.
Provisions relied on
- Section 97(2) of the CGST Act, 2017
- Clause 5(e) of Schedule II of the CGST Act, 2017
- Section 2(6) of the IGST Act, 2017
- Section 7 of the IGST Act, 2017
- Section 8 of the IGST Act, 2017
- Section 9 of the CGST Act, 2017
For the practitioner
This ruling clarifies that **non-compete fees** can be bifurcated for GST purposes based on the location of the business being protected. It confirms that such fees paid by a foreign entity for refraining from competition outside India can qualify as **zero-rated export of services**. Practitioners should note that the Authority requires a clear segregation of the fee between domestic and international components to claim the benefit of zero-rating.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/2-jolarpettai_veeramuthu_sreedhar_aar_order_compressed.pdf
Legibility of the scan, as read: high.
Prepared 12-10-2026.
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