GST Applicability & Tax Rates on Legal Services
GST Applicability & Tax Rates on Legal Services
India divides products and services into five tax slabs to collect taxes:
- 0%
- 5%
- 12%
- 18%
- 28%
Before the introduction of GST, the standard tax rate for the majority of items was around 26.5%. Additionally, the Indian indirect tax structure was revised in the wake of GST. Previously, it would have included taxes such as service tax, VAT, excise tax, and customs tax.
India’s current GST is split into four tax bands, with the lowest tax rate being 5% and the highest being 28%. As a result of its effects, advocate services are also subject to GST. The prevailing consensus is that individual attorneys and law firms are exempt from the GST on legal services. However, the issue of whether GST applies to lawyers, law offices, and their services is still up for debate.
Applicability Of GST On Legal Services
Any legal services provided by a lawyer or law firm to a company with annual aggregate revenue of at least 20 lakhs of Indian rupees are subject to a GST charge. GST on legal services provided by a senior advocate to another advocate or firm of advocates must also be paid.
Since the passage of the GST law, the taxation of legal services has remained constant. Attorneys and law firms are exempt from the reverse charges.
All indirect taxes have been consolidated into a single levy under the Central Goods and Service Tax Act of 2017 (CGST Act)[1] and other GST laws.
Section 7 of the CGST Act deals with charges when the term “supply” is considered to include all forms of supplying goods or services in exchange for money or both in order to further a business.
Article 279A of the Indian Constitution states that the GST Council determines the tax rate for legal fees for legal services. Exclusions from the prior system were carried over.
Businesses operating in general category states, such as the Northeast, that generate up to INR 20 lakh or INR 10 lakh in revenue are exempt from paying taxes.
Numerous changes have taken place since the government introduced the GST in July 2017. For legal services subject to GST on legal services, senior advocates are listed in a separate category on the reverse charge list. They fall under the category of services for reverse charges.
Under the Reverse Charge provision (RCM) of the GST laws, all legal services, whether offered by a law firm or an individual, are liable for payment. Since all of them would be exempted from GST application for legal services, no other output produced by law firms or attorneys who offer legal services is subject to GST liability.
Legal Fees And Services Under The Subject To GST
As of June 28, 2017, the following legal services are defined under entry 2 (zm) of notification no. 12/2017 – Central tax (rate): Legal services include representational services before any court, tribunal, or authority and include any services linked to advising, consulting, or help in any area of law, in any way.”
Furthermore, it is stated that notification No. 13/2017-Central Tax (Rate), dated June 28, 2017 (Serial No. 2), is applicable. For example, it states that the following services fall under the purview of the reverse charge mechanism:
“Services supplied by an individual advocate(s), or a senior advocate(s), by way of representational services before any Court of Law, Tribunal, or Authority in India, directly or indirectly, to any business entity located in the taxable territory of India.
The objective was to adapt the indirect tax system to all areas of economic activity. Legal services that were taxable and came into the “legal consultancy services” category were subject to service tax.
The service tax law put into effect the Negative List Regime in 2012. Any legal services rendered by an individual or a law firm are expressly exempt from the GST by the government. However, when the levy is applied on a reverse charge basis, there is no exemption from the requirement to pay service tax. Alternatively put, the customer or service user was in charge.
Thus, no registration was required for lawyers and law offices back then. However, the GST on law firms and on all the legal services must follow the 2017 GST system, which was recently established.
Does that indicate that lawyers who work for businesses rather than legal firms must follow the rules of the reverse charge mechanism? A person must pay GST even if they are not currently practising law.
Previously, neither service providers nor recipients were required to pay taxes. If you hired a non-attorney to perform similar services, it was taxed. However, attorney and law firm fees are subject to GST, even though they are exempt from paying it.
Therefore it is required by a lawyers to first obtain GST registration before beginning a private practice or acting for themselves. Currently, the GST does not necessitate the registration of legal professions. Furthermore, since all taxes combine into one, you are exempt from paying professional taxes.
Meaning Of Reverse Charge Mechanism (RCM) Under GST Law
The Reverse Charge Mechanism (RCM) is a procedure that allows the recipient to pay the GST rather than the supplier. In this instance, the recipient/receiver, instead of the supplier, is responsible for paying the tax.
Conclusion
Yes, the service recipient must pay GST under the reverse charge mechanism, which is the business entity, in the case of legal services, including representational services, rendered to a business entity by an advocate, including a senior advocate. If you want to know more about the same, ensure you are contacting Taxaj.
Created & Posted by Jai Sharma
Accountant at TAXAJ
TAXAJ is a consortium of CA, CS, Advocates & Professionals from specific fields to provide you a One Stop Solution for all your Business, Financial, Taxation & Legal Matters under One Roof. Some of them are: Launch Your Start-Up Company/Business, Trademark & Brand Registration, Digital Marketing, E-Stamp Paper Online, Closure of Business, Legal Services, Payroll Services, etc. For any further queries related to this or anything else visit TAXAJ
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