Before addressing the applicability of GST on legal services in India, let’s begin with the basic understanding of GST for a better perspective towards the whole concept.
Goods and service tax is a comprehensive, multi-stage, value-added indirect tax imposed on the supply of taxable goods and services. The purpose of the presentation of goods and service tax into the Indian economy was to supersede multiple levies and act as a substitute for indirect taxes with a unified tax. After the goods and service tax got implemented and came into operations, it has abolished the cascading effect on tax.
In the Goods and Service Tax regime, legal services refer to any service provided with respect to consultancy, advice as well as assistance in any category of law, in any way comprises representational services prior to any tribunal, court or authority. The impact of GST is not limited to the business owners and regular taxpayers, but the impact of GST on legal services in India and the entire legal community is visible, covering the broader legal aspects.
There was an assumption regarding the legal community that legal firms and lawyers were not part of the GST framework. However, now things are unclouded that Central Goods and Services Act encompasses advocates and services rendered by law firms, legal advisors along with services that advocates provide.
Yes, you got it right. The goods and service tax is leviable on legal services as well as accounting services. The GST rate applicable is 18%. In the Pre-GST period, the statutory tax rate for most of the goods was 26.5%. After the implementation of GST, the indirect taxation system has witnessed many changes. Given below is the diagrammatic explanation of legal services.
GST on legal services and advocates are chargeable under various prescribed conditions. The efficient implementation of goods and service tax on the 1st of July, 2017 has served the purpose of replacing the service tax system and different forms of indirect taxes. However, the order of legal services taxation remains the same as it was earlier. There is no applicability of reverse charge or forward charge for law firms as well as lawyers. As per the following conditions, GST on legal services and advocates would get charged.
The enactment of CGST 2017, along with goods and service tax legislation, has been consolidating various levies into one single unified tax.
Article 279A of the Indian constitution states that the rate of goods and service tax on legal fees in response to legal services coupled with the exemptions of the earlier tax regime got settled by the Goods and Service Tax Council.
As per the Notification No.9, Integrated Tax Rate dated 28th of June, 2017; the following services got exempted-
According to Section 7 of IGST Act, 2017, this comes under the ambit of inter-state service, and tax must get paid after getting the registration. As the export of service open to qualifying conditions, this taxable service can be eligible. This is for those entities which went through the registration process outside the geographical boundaries of India.
As mentioned in Section 2(6) of the IGST Act, The following conditions must get fulfilled in order to qualify as export of services-
If a person involved in interstate services having a turnover not more than Rs 20 lakhs or Rs 10 lakhs within a financial year, then there is no requirement to obtain registration. This exemption is needless because of the following reasons-
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It is the liability of a business entity, which is the recipient of legal service, to pay tax under RCM. In the shadow of reverse charge mechanism under GST, the liability to pay service tax is in cases where legal services received are from an Arbitral Tribunal, Individual Advocate, A firm of Advocates, and A Senior Advocate.
The structure of GST on legal services in India is just like the service tax regime. Applicability of GST on legal services has passed through various changes from time to time. The latest provisions suggest that lawyers won’t be paying professional taxes anymore as everything has got clustered into a single unit. Talking about the current scenario, the applicability of goods and service tax is on law firms or advocate fees as well. At Corpbiz, legal experts would guide you with respect to GST on legal services. We are India’s leading platform for legal solutions.
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