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GST on Legal Services in India: Applicability & GST Rate

GST on Legal Services in India: Applicability & GST Rate

Legal Services are services offered by advocates and lawyers. In connection to advice, consultancy, or help in any area of law, as well as services related to court representation. Under the GST, Legal Services are given preferential consideration. The GST is a fundamental change that will help to formalise the unorganised sector and make corporate operations simpler and more transparent. And the GST has affected the legal community as well as common taxpayers and company owners. Although initially it was believed that lawyers and law businesses were exempt from the GST framework, it is now evident that advocates, services offered by advocates, legal consultants, and law firms are covered by the Central Goods and Services Act, or CGST Act. Whenever GST is in effect, the rate of GST on Legal Services is 18%.  

Applicability of GST on Legal Services 

On July 1, 2017, the system of service taxes and other indirect taxes was officially replaced with the Goods and Services Tax (GST). The hierarchy of taxes on Legal Services has not changed. For attorneys and law companies, it neither applies the reverse charge nor the forward’s charge. 

The following conditions must be met for the following types of legal services and advocates to be subject to GST: 

  • Any attorney who practises individually, through a firm, or under the supervision of a senior attorney and who provides legal services to a company with an annual revenue over Rs. 40 lakhs are required to charge GST for those services. 
  • The legal services rendered by a senior advocate to any other individual advocate or legal company are likewise subject to GST. 

The GST Categories for Legal Services 

  • Services which are fully exempted 
  • Services which are chargeable under RCM 
  • Services which are chargeable under Standard charge 

The following services are exempt under Exempted Services Notification No. 9-Integrated Tax (IT) (Rate), dated 28.06.2017: 

An alone attorney or a partnership company of attorneys provides legal services to: 

  • Either a sole practitioner (including senior practitioners) or a partnership firm of practitioners. 
  • Any person or entity other than a business. 
  • A company with a prior fiscal year total revenue of up to Rs. 20 lakhs and Rs. 10 lakhs in special category states. 
  • Senior advocate’s legal assistance. 
  • Any person or entity other than a business. 
  • A company with a prior fiscal year revenue of up to Rs. 10 lakhs in special category states and up to Rs. 20 lakhs overall. 

Legal Services which are chargeable under RCM 

  • The recipient of the services in this case, not the supplier, is the one with the overall tax burden. 
  • Services rendered directly or indirectly to a business entity based in the taxable territory by an individual advocate, including a senior advocate or law firm. 

Legal Services which are chargeable under Standard charge 

  • The attorney or law company representing the client is ultimately responsible for paying the tax. 
  • The following must be noted: An individual advocate, including a senior advocate, or a firm of advocates providing services to a commercial entity with annual revenue of more than Rs. 20 lakhs or Rs. 10 lakhs that is not situated in the taxable territory is not exempt from RCM. 

(ii) According to Section 7 of the Integrated Good and Services Tax (IGST) Act, this is an interstate service, and tax must be paid by registering. This taxable service may (but not necessarily) meet the criteria for “export of service.” This applies to organizations set outside of India. According to section 2(6) of the IGST Act, each of the following requirements must be met in order to qualify as an export of services: 

  • The service provider must be based in India. 
  • Legal Services should be received outside of India. 
  • Legal Services must be provided outside of India. 
  • Legal Payment shall be made in a convertible currency. 
  • The two parties involved are not “different persons.” 

What is RCM? 

The fundamental tenet of indirect taxation is the collection of tax from the buyer of goods or services by the manufacturer, vendor, or service provider. After adjusting their output liability, the manufacturer or service provider in India deposits the tax with the relevant taxing authorities. 

An advocate, including a senior advocate, offers legal services at the GST rate[1]. These services are subject to taxation in India under the GST legislation in order to represent a client before any court, tribunal, or authority within a taxable territory. 

Conclusion 

In India, the structure of the GST on Legal Services is identical to the service tax system. The GST’s applicability to Legal Services has undergone a number of modifications throughout time. According to the most recent provisions, since everything has been consolidated into one unit, lawyers won’t be required to pay professional taxes any longer. Regarding the present situation, legal services or advocate fees are also subject to the goods and services tax. Legal professionals at Bizadvisors.io will advise you with regard to GST on Legal Services.

Read our article:How to Obtain GST Registration in India

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