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APPLICABILITY OF GST ON LEGAL SERVICES IN INDIA AND ITS IMPACT

SAHU & ASSOCIATES: Goods and Services Tax - GSTbeing the dominant tax reformer in the current scenario has placed its hands covering all industry sectors making business more accountable and stretching its end hand to the consumer as it’s a consumer based tax .In this article we are going to look into the impact of GST on legal services, predominately the role of advocates, firm of advocates & Senior advocate.

What is legal service?

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.

Who are Advocates, Firm of Advocates & Senior advocate?

For the purpose of GST, Advocates have been categorized into 2 types:

1. An Individual Advocate or Firm of Advocates
2. Senior Advocate

As per clause (a) of sub-section (1) of section 2 of the Advocates Act, 1961 “Advocate means an advocate entered in any roll under the provisions of this Act”. In simple terms Advocate on roll in India means an advocate whose name is entered in register of advocate prepared by the Bar Councils and when it’s related toforeignadvocates they don’t fall under the ambit of Advocate registered in India.

As per section 16 of Advocates Act 1961, Senior Advocate is an advocate when Supreme Court or High Court is of the opinion that by virtue of his ability [standing at Bar or special knowledge or experience in law] he is deserving of such distinction.

Legal services provided by Individual Advocate /Firm of Advocates/ Senior Advocate taxable?

The Impact and taxability can be categorized into 3 types:
1. Services which are Exempt.
2. Services which fall under ambit of Reverse Charge Mechanism.
3. Services which fall under ambit of Forward Charge Mechanism.

1. Services which are Exempt:

The taxability is Nil in the hands of Supplier of service& Recipient of service for the following :

1. A partnership firm of advocates or an individual as an advocate other than a senior advocate, by way of legal services to-

(i) an advocate or partnership firm of advocates providing legal services.

(ii) any person other than a business entity.

(iii) a business entity with an aggregate turnover up to such amount in the preceding financial year as makes it eligible for exemption from registration under the Central Goods and Services Tax Act, 2017 (Earlier the turnover was specified as “twenty lakh rupees (ten lakh rupees in case of a special category state) in the preceding financial year” which has now been replaced by the notification no-Notification No. 21 /2019- Central Tax (Rate) dated 30th September, 2019).

(iv) the Central Government, State Government, Union territory, local authority, Governmental Authority or Government Entity (Inserted by the Notification No. 2/2018- Central Tax (Rate) dated 25th January, 2018).

2. A senior advocate by way of legal services to-

(i) any person other than a business entity

(ii) a business entity with an aggregate turnover up to such amount in the preceding financial year as makes it eligible for exemption from registration under the Central Goods and Services Tax Act, 2017(Earlier the turnover was specified as “twenty lakh rupees (ten lakh rupees in case of a special category state) in the preceding financial year” which has now been replaced by the notification no-Notification No. 21 /2019- Central Tax (Rate) dated 30th September, 2019).

(iii) the Central Government, State Government, Union territory, local authority, Governmental Authority or Government Entity(Inserted by the Notification No. 2/2018- Central Tax (Rate) dated 25th January, 2018).


2. Services which fall under ambit of Reverse Charge Mechanism.

The taxability is Nil in the hands of Supplier of service whereas the Recipient of service for the following has to discharge the tax liability:

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.

Supplier of services-An individual advocate including a senior advocate or firm of advocates.

Recipient of services-Any business entity located in the taxable territory.

Services supplied by foreign advocate to Indian advocates / advocate firm is taxable under RCM in the hands of service receiver as the foreign advocate is not on roll of bar council of India , so it falls under the ambit of Import of Services.

3. Services which fall under ambit of Forward Charge Mechanism.

The taxability is Nil in the hands of Recipient of service whereas the Supplier of service for the following has to discharge the tax liability:

Services supplied by an individual advocate including a senior advocate to any business entity located in the non-taxable territory doesn’t fall within the ambit of RCM nor under exemption.Thus the supplier has to keep in line with export procedures on such supply and pay the tax as Inter-State supply, that is, IGST by the following.

1. Export of services without payment of tax under bond / LUT.

2. Export of services with payment of tax and thereafter apply for refund of the same.

Registration under law?

The authority provides the following category of services to avail registration or be exempted from obtaining registration.

1. Who are exempted from obtaining registration?

(i) When supplying services wholly exempt from tax.
Eg- Mr. A (Advocate) providing legal services to Mr. B (Individual) is exempt from obtaining registration under GST , as any services provided by either Individual/Firm of advocates/Senior advocate to any Non-business entity fall under the ambit of Exempted serviceseven though they are making taxable supplies.

(ii) When supplying intra-state services.
Eg- Mr. XYZ associates (Firm of Advocates) situated in Karnataka providing legal services to Mr. PQR PVT LTD situated in Karnataka is exempt from obtaining registration under GST, as any services provided by either Individual/Firm of advocates/Senior advocate to any Business entity in the same state is exempted from obtaining registration as the tax liability is to be paid by the recipient of service under RCM.

2. Who are liable to obtain registration?

(i)When supplying services by an individual advocate including a senior advocate to any business entity located in the non-taxable territory.
Eg- Mr. X (Senior Advocate) situated in Karnataka providing legal services to Mr. PPP & Co. situated in Non-taxable territory is mandatory to obtain registration under GST, as any services provided by either Individual/Firm of advocates/Senior advocate to Non-taxable territory falls under the tax bracket of inter-state supplies, that is , the supplier has to register himself and pay IGST.

(ii)When supplying inter-state services.
Eg- Mr. XYZ associates (Firm of Advocates) situated in Karnataka providing legal services to Mr. PQR PVT LTD situated in Tamil Nadu is not exempt from obtaining registration under GST, as any services provided by either Individual/Firm of advocates/Senior advocate to any Business entity situated in a different state is required to obtain registration even though the tax liability is to be paid by the recipient of service under RCM.GST law does not distinguish in obtaining registration between the Individual advocate/Firm of advocate/Senior advocate hence any person making inter-state taxable supplies of services must get GST registration as per the GST Law

(iii) When supplying services includingother supplies.
Eg- WWW associates (Firm of Advocates) selling old assets to Mr. P (Individual) is not exempt from obtaining registration under GST, as any services provided by either Individual/Firm of advocates/Senior advocate to any Non-business entity including other supplies , that is , apart from the legal services when dealt with say–Sale of any old asset is mandatory to get registered.

Rate of GST?

Tax Rate is 18% under both Reverse and Forward Charge Mechanism.

Input Tax credit can be claimed?

In case of Legal services, which are provided in India, Input Tax credit cannot be availed as the output supplies are taxable in the hands of recipient of services under RCM. Only in case of exports of services, Input Tax credit can be availed as they are categorized as zero-rated supplies, further Export of services can be rendered by LUT or by paying Tax. On the same note IGST paid on export supplies can be claimed by Refund of Input Tax Credit.



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APPLICABILITY OF GST ON LEGAL SERVICES IN INDIA AND ITS IMPACT