Section 28(va)

Section 28(va) — the law in short

What the courts have decided on section 28(va), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Shiv Raj Gupta v CIT Supreme CourtHelps taxpayer
  I sold my controlling stake and separately took a large non-compete fee. Can the department call the covenant a sham and tax the fee?
  Not on these facts, and not for the year in question. The Supreme Court allowed the assessee's appeal and set aside the Delhi High Court's judgment. It held the High Court had gone outside the substantial question of law it framed, contrary to section 260A(4), by taxing the Rs 6.6 crore as capital gain when the only question framed was taxability under section 28(ii)(a). On the merits, the revenue has no business to second guess the commercial expediency of what parties at arm's length decide, and following Guffic Chem, a receipt under a negative covenant was a capital receipt not taxable before section 28(va) took effect on 1 April 2003.
• Guffic Chem P Ltd v CIT Supreme CourtHelps taxpayer
  I was paid to stay out of the business. Is the non-compete money capital or income?
  Capital, for years before assessment year 2003-04. Compensation attributable to a negative or restrictive covenant is a capital receipt, unlike compensation for loss of agency, which is revenue. Section 28(va), which taxes non-compete receipts, is amendatory and cannot be pushed back to earlier years.
• Statutory position — s.194J: two per cent on technical fees and film royalty, ten per cent on everything else, and a fifty thousand rupee threshold that never reaches a director CBDT Circulars & InstructionsCuts both ways
  I pay a consultant, I pay an engineering firm for technical work, and I pay my company's non-executive director a sitting fee. Do I deduct two per cent or ten per cent on each, and does the fifty thousand rupee limit apply to all three?
  Section 194J does not have one rate. Since 1 April 2020 it has two, and which one you use depends on which limb of sub-section (1) the payment falls into: two per cent for fees for technical services that are not professional services and for royalty that is consideration for the sale, distribution or exhibition of cinematographic films; ten per cent for everything else the section catches — professional fees, director's remuneration, other royalty and a non-compete sum under s.28(va) — and two per cent again, under a separate proviso, where the payee is engaged only in the business of operation of a call centre. The threshold in the first proviso is fifty thousand rupees, raised from thirty thousand by the Finance Act, 2025 with effect from 1 April 2025, and it is set out limb by limb for clauses (a), (b), (c) and (d) only — clause (ba), the director limb, is not in that list, so a single rupee of director's fee carries tax. An individual or Hindu undivided family is outside the section altogether unless the second proviso pulls them back in, and then only for fees for professional or technical services. All of this governs a sum credited or paid up to 31 March 2026: the Income-tax Act, 1961 stands repealed on 1 April 2026, and for a payment on or after that date the governing provision is section 393(1), Table, Serial No. 6(iii) of the Income-tax Act, 2025, which carries the same two rates and the same fifty thousand rupee threshold.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.