Professionals obtaining any sum of money under a non-compete agreement will now be subject to tax with the government is keen to fill the loophole in budget.
Noncompete agreements are becoming boilerplate in employment contracts. A Non-Compete Agreement is a contract between two parties, where one party agrees not to compete with the other for a period of time. The Agreement is often entered into at the end of employment or the end of a business relationship, but it can also be a pre-condition to a business relationship. The Agreement lessens the possibility that knowledge gained by an employee or business partner will be used in the future to compete against them. In exchange for not competing, the party is paid a fee
Imagine if you could jump-start your business by accessing your competitor’s top customers and information about those customers’ dealing histories. While that information could give you a significant advantage in competing for those customers’ business, the icing on the cake would be to also hire your competitor’s salesperson who has developed the trust and confidence of all their customers.
Now imagine, conversely, that your competitor takes all that from you. Agreements that allow restrictions on employees’ post-employment conduct are called as “non-compete” agreements.
The money received under such non-compete agreements was earlier taxed in case of Manufacturing jobs only. Now a wide range of professionals -legal, medical, engineering, architectural or engaged in accounancy , consultancy and interior decoration, to name a few -have no escape from paying their tax dues when they receive money under a non-compete agreement.
The nature of the tax will be based on the nuances of the agreement. The money received could be taxed either as a capital gain or as income from business or profession.
