GST on consideration received for agreeing to refrain from an act

-

 GST on consideration received for agreeing to refrain from an act



A Person received a consideration for agreeing to refrain from an Act, whether such consideration attract GST? Let us Start with an Example

Suppose AC Consultancy, registered in Maharastra, supplies technical consultancy services to its clients. it has been providing technical services to YZ Ltd. Maharastra  since past two years. Consideration is settled by YZ Ltd. assignment wise. 

YZ Ltd Paid Rs. 50 Lakh to AC consultancy on 11th Feb 2018 on AC consultancy agreeing to not provide similar technical services to any other business entity in India or abroad for a period of 8 years. AC consultancy is of the view that Rs. 50 Lakh is not chargeable to GST.

So, is AC consultancy view Valid ? 

Let us answer

The scope of supply is defined in by section 7(1) of CGST Act 2017. Schedule II also clarifies certain transactions which will be treated either as supply of goods or supply of services.

The Paragraph 5(e) of Schedule II provides that agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act is treated as supply of service.

Thus, any consideration received for agreeing to the obligation to refrain from an act, is subject to GST.

Consideration received for non- compete agreement is deemed as consideration for supply of services.

Consideration of 50 Lakh received for non- compete agreement is deemed as consideration for supply of services. 

Consideration of 50 lakh received on the promise of AC Ltd. consultancy for not providing similar services to any other person, is consideration for supply, which is chargeable to GST.

The view taken by AC Consultancy is not valid in Law.


Comments

Post a Comment

Ask your GST / Income Tax questions here or contact us at 9123656835.

Popular posts from this blog

-
Image
HRA Update – Disclosure of Relationship with Landlord 📌 Introduction: House Rent Allowance (HRA) is a tax benefit given to salaried employees who live in rented houses. Earlier, taxpayers were not required to disclose their relationship with the landlord while claiming HRA. However, recent updates have introduced stricter rules to improve transparency and prevent misuse. 📊 Details: Now, taxpayers must disclose their relationship with the landlord while claiming HRA This applies mainly when rent exceeds ₹1 lakh per year and PAN of landlord is required Government is focusing on tracking fake rent payments made to relatives Cases like paying rent to parents without actual transfer or creating fake receipts are under scrutiny Proper documentation like rent agreement, receipts, and bank transfer proof is now very important ⚖️ Important Rules / Law: Relationship disclosure with landlord is now mandatory in updated report...
Read more
-
Image
📢 Bank Account Reporting in ITR FY 2025-26 Important Update: All taxpayers must report their bank account details while filing Income Tax Return (ITR). 📌 Introduction While filing Income Tax Return (ITR), taxpayers are required to provide details of their bank accounts. This helps the Income Tax Department verify financial transactions and ensures correct reporting of income. Missing this information may lead to notices or defective return issues. 📊 Details All active bank accounts (Savings, Current, Salary, Joint accounts) must be reported. Closing balance as on 31st March may be required in certain ITR forms. Keep bank statements from 1st April to 31st March ready for accurate filing. ⚖️ Important Rules / Law Bank account reporting is mandatory as per ITR instructions issued by the Income Tax Department. Under Section 139 of Income Tax Act, filing complete and correct return is compulsory. Non-disclosure may result in defective return, scrutiny not...
Read more
-
Image
Purchasing Above ₹2 Lakh? PAN May Be Mandatory! Income Tax Department Tightens Monitoring on High-Value Transactions The Government of India and the Income Tax Department have increased scrutiny on high-value financial transactions. Purchases above ₹2 lakh in certain categories may now require mandatory PAN disclosure. Failure to provide correct information or improper reporting may increase the risk of Income Tax verification or scrutiny in the future. 📌 Transactions Where PAN May Be Required Gold & Jewellery Purchase Car Purchase Shares & Securities Investment Luxury Item Purchase High-Value Financial Transactions ⚠️ Why Has Monitoring Increased? The Income Tax Department is now: Tracking high-value transactions ...
Read more