Applicability of GST on Legal Services in India and its Impact

Table of Contents

Introduction

While the state remains confused concerning the ideas and application of GST, it is vital that we tend to in short make a case for what GST suggests that before we tend to begin talking concerning the relevancy of GST on legal services. Goods and Services Tax (GST) is a revenue enhancement levied on the availability of products and services in Republic of India. The introduction of GST was to interchange indirect taxes with a unified tax, so as to reshape the country’s economy. However, faced heaps of criticism at the tip.

Before GST came into the image, the statutory charge per unit for many products was concerning twenty six.5%. And when GST, the Indian indirect taxation system was redefined. it might earlier comprise of service tax, VAT, excise duty, tariff, etc. The current GST in Republic of India is split into four tax brackets ranging from five-hitter and ending at twenty eighth. Its impact has additionally hit the bar, transferral advocate services underneath GST likewise. The overall belief is that GST on legal services isn’t applicable to individual lawyers and law companies. However, the question on the relevancy of GST on advocates, law companies and their services still remains. GST is guilty once a professional person or house provides Associate in nursing quite legal service to a business entity having a mixture turnover of Rs.20 Lakhs or additional within the previous year.

Applicability of GST on Advocates and Legal Services

After the implementation of the GST Law, there’s no modification within the taxation of legal services. Neither is it applicable on reverse charge nor forward charge for advocates and law corporations. The Central merchandise and repair Tax Act, 2017 (CGST Act) along side different GST legislation’s has been enacted to subsume all indirect taxes into one levy. Section seven of the CGST Act deals with charging wherever the expression ‘supply’ has been deemed to incorporate all varieties of provider of products or services or each for thought

Under Article 279A of the Indian constitution, the GST rate on legal fees for professional services alongside exemptions carried from the previous regime was finalized by the GST Council. There is AN exemption from the payment of GST on professional fees and firm fees. Given that they’re providing their services to anyone and not a business entity.

In the case of business entities, the exemption extends to those: having a turnover up to Rs twenty hundred thousand (general class states) and having a turnover up to Rs ten hundred thousand (special class states like North-East). Introduced GST in July 2017, it’s passed through several changes over the period of time. Beneath GST on legal services, senior advocate may be a separate class within the reverse charge list. They’re beneath the list of reverse charge class of services.

As per GST law, all legal services whether or not by a firm or individual, square measure all accountable for payment beneath Reverse Charge. All law corporations or lawyers providing legal services haven’t any different output for GST liability of their own. As they’d all get exemptions from registration beneath GST on legal services?

However, you wish to examine the registration of a firm that gives legal services outside Bharat. Aside from that, you furthermore may have to be compelled to keep a check on the receipt of the number of thought price of exchange in Bharat.

Advocate: –

As per Para 2(b) of Notification No. 12/2017 -Central Tax (Rate), “Advocate” has identical that means as is appointed to that in clause (a) of sub-section (1) of section two of the Advocates Act, 1961 (25) Advocate” means that associate advocate entered in any roll beneath the provisions of this Act (Section two (a) of Advocates Act, 1961) and “Roll” means that a roll of advocates ready

Advocate on appear Bharat means that advocate whose name is entered in register of advocate ready by Bar Councils. Just in case of foreign lawyers, they’re to not be treated as associate advocate in India as they’re not on roll of advocates of any.

Sr. Advocate:-

As per Para 2(zzd) of Notification No. 12/2017 – Central Tax (Rate), “senior advocate” has identical that means as is appointed to that in section sixteen of the Advocates Act, 1961, ‘Senior Advocate’ means that associate advocate World Health Organization could also be selected as senior advocate if Supreme Court is of the opinion that by virtue of his ability or standing at Bar or special information or expertise in law and he’s worthy of such distinction.

Is there GST on Legal Fees and Services?

Legal services provided beneath entry two (zm) of notification no. 12/2017 – Central tax (rate) on the date, 28.06.2017 defines it as follows- ‘Legal service is any service provided in relevance recommendation, practice, or help in any branch of law, in any manner and includes mimetic services before any court, assembly or authority’.

It is further clarified that notification No.13/2017-Central Tax (Rate) dated twenty eight.6.2017, (Serial No.2) specifies, inter alia, the subsequent service beneath reverse charge mechanism as- ‘Services provided by a personal advocate together with a senior advocate by means of mimetic services before any court, assembly or authority, directly or indirectly, to any business entity situated within the rateable territory, together with wherever contract for provision of such service has been entered through another advocate or by a firm of advocates, or by means of legal services to a business entity’.

Before imposing the GST on lawyers & law companies, legal services were brought beneath the scope of tax through the Finance Act, 2009. The aim was to increase the regime of tax to any or all spheres of economic activity. Thereby imposing service tax on legal services beneath the class of ‘legal practice services’ that was rateable.

In 2012, the service jurisprudence introduced the Negative List Regime. Enclosed a particular GST exemption for any quite legal services by a personal or a business firm. However, in conditions wherever the levy is on a reverse charge basis, the liability of paying service tax has no exemption. That means the liability was on the service recipient/client. So, considering that point, lawyers and law companies failed to register. Whereas currently, the GST on law companies and GST on legal services must be in accordance with the recently set GST regime of 2017.

Does that mean the principles of reverse charge mechanism apply to the lawyers United Nations agency give legal services to a company, however don’t seem to be an area of law firms? Well, if somebody isn’t a practicing professional, then he/she must pay GST. Earlier each service suppliers and recipients didn’t have to pay taxes. However if you’d take a similar services from an individual United Nations agency isn’t a practicing professional, it absolutely was rate able. However, now, there’s GST on advocate fees or law companies fee however they don’t have to pay GST.

GST Registration for Lawyers & Law Firms

GST law doesn’t differentiate in relevancy getting registration between people and partnership companies. However, GST law makes it necessary, that an individual creating inter-state rate able provides is needed to get registration.

Also, it’s notified that individuals United Nations agency area unit engaged in creating rate able provides area unit excluded from GST registration. Reason being that tax is prone to be paid by the recipient of products and services on the reverse charge basis. If the recipient is found abroad, then the GST on reverse charge mechanism won’t apply here. Instead, there’ll be a liability to discharge GST, proving the eligibility for export edges, which might then fall on the involved lawyer/law firm/LLP.

Now, this will solely be done when getting registration GST for lawyers in Republic of India. To claim the advantage of ‘export of service’ beneath GST, lawyers or law companies’ area unit needed to get the registration, whenever invoices area unit rose on foreign purchasers. Since unregistered lawyers or law companies cannot avail the advantages of export of goods/services, the provides created by them that area unit ‘inter-state supplies’, area unit technically charged to IGST. The IGST liability is then on the provider of service, not on the recipient on a reverse charge basis.

The Central Government has provided sure exceptions to the rate able services of advocates through a notification.

Legal services by law firms or an individual lawyer, other than a senior advocate to:
- An advocate or partnership firm of advocates providing legal services,
- Any person other than a business entity, or
- A business entity with an aggregate turnover of less than Rs. 20 lakh in the preceding financial year.
Legal services by a senior advocate to:
- Any person other than a business entity, or
- A business entity with an aggregate turnover of less than Rs. 20 lakh in the preceding financial year.

Author- Niharika Tiwari

Lloyd Law College

Mail id- niharikatiwari1820@gmail.com

Intern at Law Portal

Author: Niharika Tiwari,
LLOYD LAW COLLEGE (1st YEAR)