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Applicability of GST on Legal Services in India and its Impact

Many have been wanting legal aid but what about GST on it? Well, do not worry, in this blog we are elaborating the procedures of GST on legal services which have replaced the Indian indirect taxation system. Read here to find out how will the applicability of GST on legal services in India affect you, as we ease out the complexity of GST on advocate fees. Through this blog, we are sure to simplify the confusion of GST on advocates and their services.
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While the nation is still in confusion about the concepts and application of GST, it's important that we briefly explain what GST means. So, before we start talking about GST lawyers and the applicability of GST on legal services.

Goods and Services Tax (GST) is an indirect tax levied on the supply of goods and services in India. Here we’ll be answering all your questions like what will be the GST on professional fees of advocates and how is the GST on advocates fees going to work, and lots more.

The introduction of GST was to replace indirect taxes with a unified tax, in order to reshape the country's economy. However, it faced a lot of criticism at the end.

For collecting tax in India, there is a division of goods and services into five tax slabs: 

  • 0%
  • 5%
  • 12%
  • 18%
  • 28% 

Before GST came in the picture, the statutory tax rate for most goods was about 26.5%. And after GST, it has replaced the Indian indirect taxation system. It would earlier comprise of service tax, VAT, excise duty, customs duty, etc. 

The current GST in India is divided into four tax brackets starting from 5% and ending at 28%. Its impact has also hit the legal community, bringing advocate services under GST as well. 

The general belief is that GST on legal services is not applicable to individual lawyers and law firms. However, the question on the applicability of GST on advocates, law firms and their services still remains.

So, asking if they are taxable under the GST system or not is what we will discuss in this blog!

 

GST is chargeable when a lawyer or law firm provides any kind of legal service to a business entity having an aggregate turnover of Rs. 20 Lakhs or more in the previous financial year.

GST on legal services is also chargeable when a Senior Advocate provides legal service to another advocate or firm of advocates.

 

Table of Contents:

Related Read: GST SIMPLIFIED

GST Registration for Lawyers & Law Firms

If you ask any individual lawyer, law firm, LLP or Senior Advocate about the requirement of obtaining registration under GST Law. Then you will never get a clear answer.

It has been seen while most law firms are already registered under GST, individual lawyers are either not registered under GST or are reluctant to obtain GST registration for lawyers. 

GST law does not differentiate in regard to obtaining registration between individuals and partnership firms. However, GST law makes it mandatory, that a person making inter-state taxable supplies is required to obtain registration. 

Also, it is notified that people who are engaged in making taxable supplies. These are the items excluded from GST registration. Reason - that tax is liable to be paid by the recipient of goods and services on the reverse charge basis.

If the recipient is located abroad, then the GST on reverse charge mechanism will not apply here. Instead, there will be a liability to discharge GST, proving the eligibility for export benefits, which would then fall on the concerned lawyer/ law firm/ LLP. Now, this can only be done after obtaining registration GST for lawyers in India. 

To claim the benefit of ‘export of service’ under GST lawyers or law firms are required to obtain the registration, whenever invoices are raised on foreign clients.

Since unregistered lawyers or law firms cannot avail the benefits of export of goods/ services. Then the supplies made by them which are ‘inter-state supplies’, are technically charged to IGST. The IGST liability is then onto such supplier of service, not on the recipient on a reverse charge basis.

However, the Central Government has provided certain exceptions to the taxable services of advocates through a notification. The following advocate services under GST get exemptions in India:

  • Legal services by law firms or an individual lawyer, other than a senior advocate to:
  1. An advocate or partnership firm of advocates providing legal services,
  2. Any person other than a business entity, or
  3. 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:
  1. Any person other than a business entity, or
  2. A business entity with an aggregate turnover of less than Rs. 20 lakh in the preceding financial year.

GST on legal services

Suggested Read: HSN and SAC code for GST

What is a Reverse Charge Mechanism?

The primary principle followed in levying Indirect taxes is the collection of tax by the manufacturer, seller or service provider from the consumer of goods or services.

The manufacturer or service provider then deposits the tax with the taxation authorities in India after making their output liability adjustment.

An individual-advocate including a senior advocate provides GST rate on legal services. In order to represent a client before any court, tribunal or authority within a taxable territory. These are liable to tax under the GST law in India. 

GST on RCM 

The RCM on legal services is also applicable when the contract to provide legal services is with another lawyer or law firm. Also, the provision of services is by another advocate or law firm in taxable territory. 

The 'reverse charge under Goods & Services Tax and legal services' mechanism puts the liability to pay taxes on the recipient. The Good and Service tax on legal services received by the client is paid and deposited by the service receiver directly to the government under Section 9(3) of Central Goods and Services Tax Act, 2017 (pdf).

Under the reverse charge mechanism of the GST system for legal services provided by lawyers, they first need to get the registration. Like other service providers with an aggregate income of more than Rs. 20 lakhs are levied as GST on legal services fees.

In August 2017, the GST Council clarified that the services provided by lawyers including Senior Advocates and law firms are subject to GST on a reverse charge on legal services mechanism.

Also, a writ petition was filed by J.K. Mittal and Company challenging the validity of the ‘reverse charge’ mechanism under GST for advocates and GST on law firms.

This has been approved by the GST Council, where the GST on Lawyer fees and services would be chargeable. That too under the reverse charge category provided by an individual advocate and a Senior Advocate.

The placing of lawyers and law firms under the Reverse Charge Mechanism adds to their cost structure. Thus, the GST council meeting clarified that the GST on legal fees in India shall be applicable on the reverse charge basis.

So, the question has been answered by the finance ministry by stating that GST for lawyers in India is to be borne by the clients as RCM on legal services.

reverse charge on legal services

Must Read: Impact of GST on Restaurants and Food Businesses

Is there GST on Legal Fees and Services?

To answer this, first, we need to understand what do legal services relate to? 

Legal services provided under entry 2 (zm) of notification no. 12/2017 – Central tax (rate) on the date, 28.06.2017 which is -

“Legal service means any service provided in relation to advice, consultancy or assistance in any branch of law, in any manner and includes representational services before any court, tribunal or authority”.

However today, the services provided by Advocates and Law Firms under the GST Law, the GST rate on legal services enjoy a special position.

It is further clarified that notification No. 13/2017-Central Tax (Rate) dated 28.6.2017, (Serial No. 2) specifies, inter alia, the following service under reverse charge mechanism - 

“Services supplied by an individual advocate including a senior advocate by way of representational services before any court, tribunal or authority, directly or indirectly, to any business entity located in the taxable territory, including where contract for provision of such service has been entered through another advocate or a firm of advocates, or by a firm of advocates, by way of legal services, to a business entity.” 

Before imposing the GST on lawyers & law firms, legal services were brought under the scope of indirect tax through the Finance Act, 2009.

The aim was to extend the regime of indirect tax to all spheres of economic activity. Thereby imposing service tax on legal services under the category of “legal consultancy services” which was taxable. 

In 2012, the service tax law introduced the Negative List Regime. Here, the government included a specific GST exemption for any kind of legal services by an individual or a law firm.

However, in conditions where the levy is on a reverse charge basis. Also, the liability of paying service tax has no exemption. Meaning the liability was on the service recipient/client.

So, considering that time, lawyers and law firms did not register. Whereas now, the GST on law firms and GST rate on legal fees has to be in accordance with the newly set GST regime of 2017.

Does that mean the rules of reverse charge mechanism apply even to the lawyers who provide legal services to an organization, but are not a part of law firms?

Well, if someone is not a practising lawyer, then he/she has to pay GST.

Earlier both service providers and recipients didn’t have to pay taxes. But if you’d take the same services from a person who is not a practising lawyer, it was then taxable. Only they had such a privilege.

However now, there is GST on advocate fees or law firms fee but they don’t have to pay GST.

So, if a lawyer is practising in a firm or is representing himself individually. Then, in that case, he/she has to get registration under GST first.

Registration under GST on lawyers is not mandatory right now. Also, you don't have to pay any professional tax, because all taxes are a combination of one.

GST on advocate fees

Top Read: GSTR-1 deadline ends

Applicability of GST on Advocates and Legal Services

After the implementation of the GST Law, there is no change in the taxation of legal services. Not even in the applicability of GST in India on the legal services. Neither in reverse charge nor forward charge mentions by advocates and law firms.

  • The Central Goods and Service Tax Act, 2017 (CGST Act) along with other GST legislation has been enacted to subsume all indirect taxes into a single levy. 

  • Section 7 of the CGST Act deals with charging where the expression “supply” has been deemed to include all forms of supply of goods or services or both for consideration and in furtherance of a business.

  • Under Article 279A of the Indian constitution, the GST rate on legal fees for lawyer services along with exemptions carried from the previous regime was finalized as its recommendations by the GST Council.

There is an exemption from the payment of GST on Lawyer fees and Law Firm fees. Only if they are providing their services to any person and not a business entity.

In the case of business entities even, the exemption extends to those:

  • having turnover up to Rs 20 lakh (general category states) and

  • having turnover up to Rs 10 lakh (special category states like North-east). 

After the government introduced GST in July 2017, it has gone through many changes over the time period. Under GST on legal services, senior advocate is a separate category in the reverse charge list. They are under the list of reverse charge category of services.

Under GST, all legal services whether by a law firm or individual, all are liable to Reverse Charge. All law firms or lawyers providing legal services have no other output for GST liability of their own. As they would all get exemptions from registration under GST on legal services.

However, you need to check the registration where a law firm provides legal services outside India. Apart from them, also keep a check on the receipt of a consideration value of foreign exchange in India.

Lawyer services and legal firms' services are like any other services and people should not have any problem with paying GST on legal services.

While taking services from any other professionals like chartered accountants, it is the service recipients who pay. So why should it be any different for legal services?!

applicability of GST in India

Further Read: Property Tax System in India

Who can help you here?

Need to register yourselves with the GST regime in India? 
Or are you not sure about the GST on legal services?
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Reviewed by:
Apeksha Pandita
Published on 13th Mar, 2019
36,567 views

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