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GST on Legal Services in India: A Complete Outlook

Deepti Shikha

| Updated: Mar 27, 2020 | Category: GST

GST on Legal Services

The Goods and Services Tax, also commonly known as GST in India, offers a broader and formalised indirect tax structure without cascading effects of the VAT regime. GST is a multi-stage destination-based tax that is charged on every stage of value addition. The GST is a significant reform towards formalisation of the unorganised sector as well as making business operations easier and more accountable. And it is not just the ordinary taxpayers or the business owners; GST has impacted the legal community too. Although initially it was assumed that lawyers and law firms were outside the GST framework, but now it is clear that the Central Goods and Services Act or CGST Act includes advocates, services provided by advocates, legal advisors and law firms. In case, where GST is applicable, the rate of GST on legal services would be 18%.

What is the meaning of Legal Services?

As per Notification No-12 Central Tax (CT) Rate dated 28.06.2017– Legal services refer to any service provided concerning advice, consultancy or assistance in any branch of law in a manner which includes representational services before any court, tribunal or authority. Legal services can be explained as follows:

  • An advocate, including a senior advocate or a firm of advocates providing any type of services during the course of practice, comes under the definition of legal services.
  • Legal Firms or owners with a turnover of Rs. 20 lakhs or more.

How was Legal Services Taxed Before GST?

Before the enforcement of GST, service tax was applicable for legal firms in the following manner:

  • Service tax was charged on legal services offered by Senior Advocates or Advocates or firm of advocates or Business entities.
  • Only some of the senior advocates paid service tax, rest many of them need not pay tax under the old regime.
  • However, individual advocates or legal firms were taxed as per the reverse charge mechanism. The receiver of the legal services had to pay service tax on the cost of service paid directly to the Government.

Applicability of GST on Legal Services and Lawyers

The Goods and Services Tax (GST) was effectively implemented on July 1, 2017, effectively replacing the service tax system and other forms of indirect taxes. There is no change in the order of taxation of legal services. Neither it applies the on reverse charge nor forwards charge for lawyers and law firms.

  • The Central Goods and Service Tax Act or CGST, 2017, along with other GST legislation, has been enacted to include all indirect taxes into a single levy.
  • As prescribed in Article 279A of the Indian constitution, the GST rate on legal fees for legal services along with the exemptions carried from the previous taxation regime was finalised by the GST Council.

GST on legal services and advocates is chargeable according to the following conditions:

  • Any advocate practising individually or firm of advocates or senior advocates providing legal services to a business entity, having an annual turnover above Rs. 40 lakhs, will pay GST on the given services.
  • GST is also charged on the legal services provided by a senior advocate to any other individual advocate or a legal firm.

The Categorisation of GST on Legal Services

categorisation of GST on Legal Services

Exempted Services

Notification no. 9-Integrated Tax (IT) (Rate) dated 28.06.2017 exempts the following services:

  • Legal services are given by an individual lawyer or a partnership firm of advocates to:
  • Individual advocate (also including senior advocates) or partnership firm of advocates.
  • Any individual other than businesses.
  • A business institution with an aggregate turnover up to Rs 20 lakhs and Rs.10 lakhs in special category states in the preceding financial year.
  • Legal services granted by senior advocate:
  • Any individual person is other than a business entity.
  • A business organisation with an annual turnover up to 20 lakhs and Rs.10 lakhs in special category states in the preceding financial year.

Services which are chargeable under RCM or Reverse Charge Mechanism

  • Here the overall liability to pay tax is on the recipient of the services and not the supplier.
  • Services provided by an individual advocate also including a senior advocate or legal firm providing legal services, directly or indirectly to a business entity located in the taxable territory.

Services which are chargeable under the standard charge

  • Here, the overall liability to pay tax is on the advocate or firm of advocates.
  • An individual advocate, also including a senior advocate or a firm of advocates providing services to a business entity having turnover of more than Rs.20 lakhs or Rs. 10 lakhs which is not located in the taxable territory is neither under RCM nor under exemption following must be noted:

(ii) This is inter-state service (as per section 7 of the Integrated Good and Services Tax(IGST) Act) and tax needs to be paid by taking registration. This taxable service can qualify (not certainly) as ‘export of service’ subject to qualifying conditions. This is for entities registered outside India. As prescribed in section 2(6) of  the IGST Act, sequentially to be eligible as export of services, the following conditions must be fulfilled:

  • The supplier should be in India.
  • Recipient of services should be outside India.
  • Place of supply of services must be outside India.
  • Payment must be received in convertible foreign exchange.
  • Supplier and recipient are not ‘distinct persons’

(ii) Registration in case of Export of Services

  • In case a person who is engaged in inter-state services having a turnover up to Rs. 20 lakhs or Rs. 10 lakhs in a financial year-registration is not required. Hence, if turnover which includes the turnover of export of services is up to Rs. 20 lakhs or Rs. 10 lakhs, registration is not required. This exemption is unnecessary due to the following reasons:

(I) A turnover limit is provided in this exemption.

(ii) As per Section 16 of the IGST Act-Exporter of services cannot claim a refund of taxes as only a registered person can claim a refund.

GST-Registration

GST Registration for Lawyers and Law Firms

  • GST law does not distinguish in regard to obtaining registration between the individuals and partnership firms. However, a person making inter-state taxable supplies of services must get GST registration as per the GST Law.
  • Person engaged in making taxable supplies are excluded from GST registration. In this case, tax is liable to be paid by the recipient of goods and services on the reverse charge basis.
  • In case the recipient is sited abroad, then the GST on reverse charge mechanism does not apply here. Instead, there will be a liability to release the GST, proving the eligibility for export benefits, which would then fall on the concerned lawyer or law firm or LLP. This is possible only after obtaining GST registration for lawyers in India.
  • The unregistered law firms or lawyers cannot avail benefits of export of goods or services, the supplies made by them which are ‘inter-state supplies’, are technically charged to IGST.

What are the Legal Provisions to Obtain GST Registration to Pay GST on Legal Services?

The legal provisions for obtaining GST Registration to pay GST on legal services are as follows:

  • As per Section 22 of the Central Goods and Services Tax (CGST) Act –Any person engaged in the supply of services having turnover exceeding Rs.20 lakhs shall be mandatorily required to take registration.
  • As prescribed in Section 23(1) of CGST Act- Any person who is engaged exclusively in supplying of services wholly exempt from tax is not required to obtain registration.
  • A person who is engaged in supplying intra-state services is exempted from obtaining registration where the entire tax is payable under RCM as- mentioned in Notification no. 5-CT dated 19.06.2017.
  • A person who is engaged in supplying of inter-state services must obtain GST registration- Section 24 of CGST Act.

What is Reverse Charge Mechanism?

The basic principle which is followed in levying the indirect taxes is the collection of tax by the manufacturer or seller or service provider from the consumer of goods or services. The manufacturer or the service provider then deposits the tax with the concerned taxation authorities in India after making their output liability adjustment.

An advocate, including a senior advocate, provides rate on GST on legal services. In order to represent a client before any court, tribunal or authority within a taxable territory, these services are liable to be taxed under GST laws in India.

How can Enterslice help You?

Enterslice has professionals who will help you in getting GST Registration. Our experts will guide you in regarding the GST on legal services.

Conclusion

GST on legal services is quite similar to the service tax regime. Application of GST on legal services offered by advocates and law firms has undergone many changes. Now the lawyers do not need to pay professional tax as it has been clubbed in one. The Central Government has provided some exceptions to the taxable services of advocates. In current time GST is applicable on advocates fees or law firms.

Read, More: GST on Education Services -A Complete Analysis .

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Deepti Shikha

Deepti is a Law graduate with an avid interest in reading and very proficient in summarizing legal cases. She has enough experience in handling legal affairs of the company. In the initial days of her career, she has worked as a legal researcher and has 3+ years of experience.

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