This article details the changes made to the Indian indirect taxation system regarding the GST on legal services
Many people seek legal aid, but what about the charged GST? This article details the changes made to the Indian indirect taxation system regarding the GST on legal services. Continue reading as we simplify the confusing topic of GST on advocate fees to learn how it affects you when it applies to legal services in India. Before we discuss the applicability of GST on legal services, it is crucial to define GST briefly because the country is still unclear about its concepts and application. India imposes an indirect tax known as the Goods and Services Tax (GST) on the delivery of goods and services. The GST was implemented to replace indirect taxes with a single, unified tax to alter the nation’s economy. But in the end, it received a lot of criticism. Let’s see whether GST applies to legal consultancy fees in India.
GST Registration Requirement
Requirement for GST on Legal Services
GST registration becomes mandatory for advocates, senior advocates, or advocacy firms offering legal services, whether exempt or taxable, under the following conditions:
Exceeding GST Registration Threshold: Registration is required if the turnover of an advocate, senior advocate, or advocacy firm surpasses the GST registration threshold.
Forward Charge Tax Payment: GST registration is necessary if tax is to be paid on a forward charge basis.
Additionally, when legal services are provided to a corporate body with a turnover exceeding Rs 40 lakh, GST is applicable under the reverse charge mechanism.
Taxability of Legal Services
Individual Advocate or Firm of Advocates
If services are provided to a corporate body with a gross turnover exceeding the registration threshold, GST is applicable under the reverse charge mechanism.
Senior Advocate
Services are provided to:
- Individual advocate or firm of advocates
- Another senior advocate
- A corporate body with gross turnover exceeding the registration threshold.
However, certain circumstances exist where legal services provided are exempt, as discussed in the previous section.
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.
Application of GST to Legal Services and Advocates
Any legal services rendered by a lawyer or law firm to a business entity with a combined annual revenue of at least Rs. 20 lakhs are subject to a GST levy. When a senior advocate offers legal services to another advocate or firm of advocates, GST on those services is also due.
- The taxation of legal services has not changed since the GST Law. The reverse and forward charges do not apply to attorneys and legal firms.
- The Central Goods and Service Tax Act, 2017 (CGST Act) and other GST laws have combined all indirect taxes into a single levy.
- The CGST Act’s Section 7 addresses charging when the term “supply” has been interpreted to embrace all kinds of providing products or services for consideration or both in furtherance of a company.
- According to Article 279A of the Indian Constitution, the GST Council decided on the tax rate for legal fees for legal services. It carried over exclusions from the previous system.
Businesses that fall within the general category states and have a revenue of up to Rs. 20 lakh or up to Rs. 10 lakh are free from the tax (particular category states like North-East).
Since the government implemented the GST in July 2017, numerous adjustments have occurred. Senior advocates are a separate category in the reverse charge list for legal services subject to GST. They fall under the services listed under the reverse charge category.
All legal services, whether provided by a law company or an individual, are subject to payment under the Reverse Charge provision of the GST statute. No other output for law firms or attorneys who provide legal services is subject to GST responsibility since all of them would be exempt from GST applications for legal services.
However, if a law company offers legal services outside India, you should confirm its registration. In addition, you should keep an eye on how much foreign currency India receives.
Is GST Applicable to Legal Services Fees in India?
Legal services are defined as follows under entry 2 (zm) of notification no. 12/2017 – Central tax (rate) as of the date, June 28, 2017: “Legal services are any services related to advising, consultancy, or assistance in any branch of law, in any manner, and include representational services before any court, tribunal, or authority.”
It is also made clear that notification No. 13/2017-Central Tax (Rate) dated 28.6.2017, (Serial No. 2). Among other things, it specifies the following service under reverse charge mechanism as “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 a contract for the provision of the Finance Act of 2009 brought legal services within the scope of indirect tax before imposing the GST on attorneys and law firms.
The intention was to apply the indirect tax system to all areas of economic activity. Thus, legal services that fell under the “legal consultancy services” category and were taxable were subject to service tax.
The Negative List Regime was Implemented in 2012 by the service tax law. The government has specifically exempted any legal services an individual or a law business provides from the GST. However, there is no exemption from the obligation to pay service tax in circumstances when the levy is made on a reverse charge basis. In other words, the client or service recipient was responsible.
As a result, attorneys and legal firms were not registered then. However, the GST on law firms and the GST on legal services must adhere to the newly established GST system of 2017.
Does that imply that the guidelines of the reverse charge mechanism apply to attorneys who work for organizations but are not employed by law firms? If a person does not now practice law, they must pay GST.
Previously, neither service providers nor recipients had to pay taxes. However, it was taxable if you obtained similar services from a non-attorney. However, there is GST on attorney and legal firm fees, but they are exempt from paying GST.
Therefore, a lawyer must first obtain GST registration before engaging in private practice or representing themselves. Legal professionals are not currently required to register under the GST. Additionally, since all taxes are a combination of one, you are not required to pay professional taxes.
Make tax calculations a breeze! Use our advanced GST Calculator India for quick and reliable results.
GST on Legal Services
According to notification 12/2017 – Central Tax (Rate) dated 28.06.2017, GST is applicable on a reverse charge basis for the following legal services:
Services by a Partnership Firm of Advocates or an Individual Advocate (excluding senior advocates):
- Legal services to another advocate or partnership firm of advocates
- Legal services to any person other than business entities
- Legal services to a business entity with an aggregate turnover up to ₹20,00,000 (₹10,00,000 in special category states) in the preceding financial year.
Services by a Senior Advocate:
- Legal services to any person other than business entities
- Legal services to a business entity with an aggregate turnover up to ₹20,00,000 (₹10,00,000 in special category states) in the preceding financial year.
Key Definitions:
- Advocate: An individual or firm providing legal services.
- Senior Advocate: An experienced advocate recognised by the court
- Business Entity: Any entity engaged in business activities, subject to turnover thresholds.
Legal Services SAC and GST Rate
| SAC Code | Description of Services | Rate (%) | CESS (%) | Effective Date | Rate Revision |
| 9982 | Legal And Accounting Services | 18 | Nil | 01/07/2017 | 18% |
| 998211 | Legal Advisory And Representation Services Concerning Criminal Law | 18 | Nil | 01/07/2017 | 18% |
| 998212 | Legal Advisory And Representation Services Concerning Other Fields Of Law | 18 | Nil | 01/07/2017 | 18% |
| 998213 | Legal Documentation And Certification Services Concerning Patents, Copyrights And Other Intellectual Property Rights | 18 | Nil | 01/07/2017 | 18% |
| 998214 | Legal Documentation And Certification Services Concerning Other Documents | 18 | Nil | 01/07/2017 | 18% |
| 998215 | Arbitration And Conciliation Services | 18 | Nil | 01/07/2017 | 18% |
| 998216 | Other Legal Services N.E.C. | 18 | Nil | 01/07/2017 | 18% |
| 998221 | Financial Auditing Services | 18 | Nil | 01/07/2017 | 18% |
| 998222 | Accounting And Bookkeeping Services | 18 | Nil | 01/07/2017 | 18% |
| 998223 | Payroll Services | 18 | Nil | 01/07/2017 | 18% |
| 998224 | Other Similar Services N.E.C | 18 | Nil | 01/07/2017 | 18% |
| 998231 | Corporate Tax Consulting And Preparation Services | 18 | Nil | 01/07/2017 | 18% |
| 998232 | Individual Tax Preparation And Planning Services | 18 | Nil | 01/07/2017 | 18% |
| 998240 | Insolvency And Receivership Services | 18 | Nil | 01/07/2017 | 18% |
Note: Provided that Director (Sports), Ministry of Youth Affairs and Sports certifies that the services are directly or indirectly related to any of the events under FIFA U-17 Women’s World Cup 2020.
Exemptions Available for Advocates, Senior Advocates, and Firm of Advocates: GST Registration
Under the GST regulations in India, specific exemptions apply to advocates, senior advocates, and firms engaged in advocacy services. These exemptions are outlined as follows:
Threshold Limit Exemption
Advocates or advocacy firms with an aggregate turnover not exceeding Rs. 20 lakh in a financial year are not obligated to obtain GST registration. However, this exemption is applicable only for services rendered to individuals and not businesses.
Services to Senior Advocates
If a senior advocate provides legal services to another senior advocate, such services are exempt from GST.
Services to Individuals
Legal services offered by advocates, including senior advocates, to individuals are exempt from GST if the fees charged are less than Rs. 1,000 per day.
Services to Court or Tribunal
Services provided by advocates, including senior advocates, to a court or tribunal are exempt from GST.
Services to Government
Legal services provided by advocates, including senior advocates, to the government, local authorities, or specified persons are exempt from GST.
While advocates, senior advocates, and advocacy firms might be exempt from GST registration under specific conditions, they must still adhere to other provisions of the GST law. This includes issuing proper invoices, maintaining records, and timely and accurate filing of GST returns. Additionally, if a registered business entity avails the services of an advocate, it may be required to pay GST under the reverse charge mechanism.
GST Rates and HSN or SAC Codes for Advocates, Senior Advocates & Firms of Advocates
Under GST regulations in India, legal services provided by advocates, including senior advocates and advocacy firms, fall under the Service Accounting Code (SAC) 998212. The applicable GST rate for these legal services is 18%.
Here are the GST rates and HSN or SAC codes for some common legal services provided by advocates:
- Legal Consultancy: HSN/SAC – 998212; GST Rate – 18%
- Drafting of Legal Documents: HSN/SAC – 998212; GST Rate – 18%
- Representation Before Any Court, Tribunal, or Authority: HSN/SAC – 998212; GST Rate – 18%
- Arbitration Services: HSN/SAC – 998213; GST Rate – 18%
It’s essential to note that while legal services provided by advocates are subject to GST, certain exemptions exist for services provided to individuals, by senior advocates, or to the government and specified persons, where no GST is levied.
In cases where a registered business entity engages the services of an advocate, GST may be payable under the reverse charge mechanism.
GST on RCM
When a contract for legal services is made with another attorney or law firm, the RCM on legal services is likewise in effect. It also applies when legal services are rendered in the taxable territory by another attorney or law firm.
The recipient is responsible for paying taxes due to the reverse charge under the “Goods and Services Tax and Legal Services” mechanism. According to Section 9(3) of the Central Goods and Services Tax Act, 2017, the service recipient is responsible for paying and depositing the GST on legal services received by the client directly to the government (pdf).
Lawyers must first register to supply legal services under the GST system’s reverse charge process. Legal service costs are subject to GST, just as other service providers with an aggregate income of more than Rs. 20 lakhs.
The GST Council stated in August 2017 that legal services performed by attorneys, including Senior Advocates and law firms, are subject to GST under a reverse charge system. J.K. Mittal and Company have filed a writ petition contesting the legality of the GST on law firms, and “The GST Council, where the GST on attorney fees and services will be charged, has authorized this. That, too, falls under the reverse charge group mentioned by a junior and individual advocate.
The Reverse Charge Mechanism’s inclusion of attorneys and law firms in its cost structure raises it. As a result, it was made clear at the GST Council meeting that the GST on legal fees in India will be applied on a reverse charge basis.
In response, the finance ministry stated that clients in India are responsible for paying GST for lawyers as RCM on legal services.
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 GST on legal services, ensure you are contacting Vakilsearch.
Frequently Asked Questions
Is GST applicable to legal consultancy services in India?
Yes, legal consultancy services are subject to GST in India.
What is the GST rate for legal consultancy fees in India?
The GST rate for legal consultancy services in India is 18%.
Are individual lawyers or law firms required to register for GST?
Individual lawyers or law firms are required to register for GST if their aggregate turnover exceeds the threshold of Rs. 20 lakhs in a financial year.
Is there a threshold for legal consultancy fees under which GST registration is not mandatory?
If the aggregate turnover of an advocate or a firm of advocates does not exceed Rs. 20 lakhs in a financial year, GST registration is not mandatory.
How is GST calculated on legal consultancy services, and what are the invoicing requirements?
If the aggregate turnover of an advocate or a firm of advocates does not exceed Rs. 20 lakhs in a financial year, GST registration is not mandatory.
Are there any exemptions or concessions available for legal consultancy fees under GST?
Exemptions are available for certain legal services, such as services provided to individuals where the fee charged is less than Rs. 1,000 per day, and services provided to the government, local authorities, or specified persons.
What documentation is required for compliance with GST regulations for legal consultancy services?
Documentation requirements include maintaining proper records, issuing tax invoices, and complying with the invoicing and record-keeping requirements under the GST law.
If a legal consultancy service is provided to a client outside India, is GST still applicable?
It's advisable to consult with a tax expert from Vakilsearch for specific cases involving cross-border services.
Can input tax credit be claimed on GST paid for legal consultancy services?
Yes, input tax credit can be claimed on GST paid for legal consultancy services, subject to compliance with the input tax credit provisions under the GST law.
What are the consequences of non-compliance with GST regulations for legal consultancy fees in India?
Non-compliance with GST regulations for legal consultancy fees can lead to penalties and legal consequences as per the provisions of the GST law.
