Non-Compete Fee Tax Deductibility Explained

The Supreme Court in India recently explained why non-compete fees are considered tax deductible as revenue expenditures.

Normally, capital expenditures are those that provide benefits over several years and are of significant magnitude.

However, in this case, the Court found that neither of these conditions was met.

A chartered accountant, S. Murlidharan, noted that no capital asset was created, which is a key factor in determining whether an expenditure is capital or revenue in nature.

This means that the non-compete fee does not qualify as a capital expenditure and is therefore tax deductible as a revenue expenditure.