GST: To know about the Applicability of GST (Goods and Services Tax) on Legal Services in India we must know about the term GST i.e Goods and Services Tax. GST is a consumption tax collected by the central or state government levied on supplying goods and rendering services. GST revolves around the statement “ One Nation One Tax “. GST creates a semblance of the common market of the supply of goods and services or both without the fact as to where it takes place, has common treatment, and is provided with a common tax rate throughout the chain. The four kinds of tax applicable under GST are first, Central Goods and Services Tax (CGST), secondly, State Goods and Services Tax, thirdly, Integrated Goods and Services Tax (IGST), and fourthly Union Territory Goods and services tax (UTGST). CGST and SGST are levied within a state whereas IGST is levied outside a state i.e from one state to another. GST is divided into five different tax slabs for the collection of revenue – 0%, 5%, 12%, 18% and 28%.
GST came into effect on July 1, 2017, by the government of our country “India”. GST has replaced the existing tax service that was VAT (Value Added Tax) which was imposed on multiple products and was not distributed equally among the central and state government whereas GST now provides an equal share of tax among the central and state governments.
GST Applicable on Advocate and Legal Service:
As soon as the GST law is implemented, no changes can be made in the taxation of legal services. And is not applicable to reverse charge or forward charge for advocates as well as law firms.
- The CGST Act comprising other GST legislation has been enacted to comprehend all individual taxes into a single levy.
- Section 7 of the GST Act- It charges where the expression supply is responsible to include all sorts of supply of goods or services or both and in furtherance of a business.
- According to the Article 279A of the Indian constitution, the GST rate on legal fees for exemptions carried from the previous region along with lawyer services was finalized by the GST council.
From the payment of GST, there is an indemnity on Law Firm fees and Lawyer fees. Only if the Law Firm fees and Lawyer fees are providing their services to any individual and not a business company. For business companies, the indemnity extends to those with a turnover up to Rs. 20 lakh for general category states and having a turnover up to Rs. 10 lakh for special category states such as North East.
After an infinite change, it has been decided that the legal services, a senior advocate is a separate category under the reverse charge list. According to this law, all law firms or lawyers who provide legal services will not have other outputs for GST liability and all sorts of legal services whether they are by a law firm or an individual, are all liable for payment under the Reverse charge as they would all get indemnity from registration under GST on legal services.
GST on Legal Fees and Services:
Legal services were brought under the scope of the indirect tax through the Finance Act, 2009 before the GST law was imposed on lawyers and law firms. The main goal was to enlarge the regime of indirect tax to all parts of economic activity. Therefore, the government imposed a service tax legal service under the category of legal consultancy services as it was taxable. In 2013 the service tax law introduced the negative test Regime where the administration included a specific GST exemption for any sort of legal services by a law firm or an individual. So, at that time legal services by a law firm did not register. But now the GST on law firms and GST on legal services has to be done under the newly set GST regime of 2017. GST on advocate fees or law firms fees is there but they don’t have to pay GST. Registration under GST for lawyers is not necessary at this point and you don’t even have to pay professional tax as all taxes are a combination of one.
Registration for Lawyers and Law firms under GST:
GST makes it mandatory to obtain a registration for an individual making inter-state taxable supplies as it does not differentiate between individuals and partnership firms. People engaged in making taxable supplies are from GST registration. GST on reverse charge mechanism is not applied in a recipient, located abroad. The Central Government has provided certain indemnity to the taxable service and they are:
® Law firms or an individual lawyer provide legal service other than a senior advocate to:
- An advocate or partnership firm of advocate provides legal services.
- A business establishment with a turnover of less than Rs. 20 lakh in the preceding financial year and any individual other than a business establishment.
® Senior advocate providing legal services to:
- Any individual but not a business establishment.
- A business establishment with a turnover of less than Rs. 20 lakh in the preceding financial year.
GST on RCM:
GST on RCM is applicable if the provision of services is by another advocate or law firm in the taxable territory and also applicable when the contract to provide legal services is with another law firm or lawyer. Under Section 9(3) of the Central Goods and services tax act, 2017 the GST on legal services received by the client is paid and deposited by the service recipient directly to the administration. They first need to get registered under the reverse charge mechanism of the GST system for legal services provided by lawyers. With an aggregate income of more than Rs. 20 lakh are levied as GST. It has been finalized by the GST Council, where the GST on lawyer fees and services would be charged. The cost structure of lawyers and law firms can be analyzed as they are placed under the Reverse Charge Mechanism. It has been clarified that GST on legal fees is applicable on a reverse charge basis.
Click here to apply for GST.