GST on lawyers and law firms

Rajdeep Saini

10 Nov, 2020

The general goods and services tax is the new indirect taxation system which is levied on all the goods and services India. There is a general consensus that the law firms or the lawyers do not have to obtain any GST registration under GST law and further now required to pay GST law on the legal services they provide in India. The tax bracket of the GST starts from 5% and end at 28%, the impact of the GST taxation hit the legal sector by bringing law firms and lawyers under its ambit.

Applicability of GST on lawyers and law firms

General Sales Tax (GST) is chargeable on law firms and lawyers who deliver any kind of legal services to a business or an entity having a turnover total of Rs. 20 Lakh or more in the previous year. Also, GST on the legal services will also be chargeable where a senior advocate provides services to another firm’s advocate or any other advocate.

After the implementation of the new indirect law, there is no change in the tax rate of the legal services and neither gets it applied to the reverse charge for the law firms or the advocate.

Under Section 7 of the GST Act, the term supply will tend to include all forms of supply of goods and services or both in furtherance of business. Also, under Article 279A of the Indian Constitution, the rate of GST on the lawyers’ service or the legal fees with respect to the exemptions carried from the pre-GST time was fixed by the GST Council^[1].

Exemption of GST on lawyers and law firm

There is an exemption from the payment of the general Sales and Tax on the law firm fees and the lawyers’ fees only if they provide service to an individual and not a business entity.

The following exemptions are extended in case of business entities:

• Business entities having turnover up to Rs Twenty Lakhs; and
• Business entities having turnover up to Rs Ten Lakhs in case of North-East states.

In the year 2017, GST was introduced by the Indian government; it has undergone many changes over the period of time. In respect to the legal services, a Senior advocate comes under a separate category in the reverse charge list.  As per the new indirect tax law, all the legal services by an individual or the law firm are liable for the payment under the reverse charge. The entire individuals who are providing legal services have no other output of the liability of GST of their own.

However, there are some things are need to be kept in checks such the law firm or lawyers providing legal services outside India and similarly, the receipts related to the foreign exchanges also need to put under check.

GST on lawyers and law firms fees and Services

The term legal service which is provided under notification no. 12/2017 – Central Tax rate defines it as- Legal service is a service which is been provided in respect to assistance, advice and consultancy in any branch of the law and also includes representational service before any authority, tribunal or court indirectly or directly, to any territory located in the taxable territory.

Therefore, compelling the GST on the law firms and the lawyers was for the first time brought under the category of indirect taxation by the Finance Act, 2009. The motive behind that is to extend the blanket of the indirect taxation to the entire sphere of economic activity.  Therefore, the tax on the legal services by the lawyers and the law firms will be taxable under category of Legal Consulting Services.

Earlier both the recipient and the service provider did not have to pay taxes. However, if you did take a similar service form the person who is not a lawyer, it was taxable. But now, the GST rates are applicable to the law firm’s fees or advocates fees but they don’t have to pay GST. So, if the advocate is practising in the law firm or representing himself, she/he might not have to be registered under GST.

Registration of GST on lawyer and law firm

There is no differentiation in respect of obtaining registration between partnership firms and individuals. However, the GST law makes it compulsory, that an individual making inter-state transaction of the supplies require registration.

All the law firms and the lawyers providing any legal service to the business entities any place other than India, must obtain registration under the Goods and services tax law to avoid any penalty under the GST Law.

Conclusion on GST on Lawyers and Law Firms

Read our article:Simplified and New GST Returns from April 2020