Non-compete agreements during acquisitions that restrict the seller from starting a new venture for some time or poaching employees and customers, have attracted the taxman’s attention as it can be seen as a service provided by the seller of the business to the buyer.
Several private equity firms, strategic investors and others that have bought businesses and entered into these contracts with the sellers have received notices from the indirect tax department, demanding that they pay goods and services tax at 18% on the non-compete fee.