GST on Lawyers

Legal service has been defined to mean 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. 

TAX RATE – GST for lawyers has been kept at 18% with full ITC. This means lawyer will be eligible to claim ITC for taxes paid on inputs and input services and they will charge GST to clients @ 18%.

EXEMPTION - Services provided by-         

a.    An arbitral tribunal to -

                               i.           Any person other than a business entity; or

                             ii.           A business entity with a turnover up to rupees twenty lakh (ten lakh rupees in a special category state) in the preceding financial year;

b.    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; or

                           iii.           A business entity with a turnover up to rupees twenty lakh (ten lakh rupees in a special category state) in the preceding financial year; or

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

                               i.           Any person other than a business entity; or

                             ii.           A business entity up to rupees twenty lakh (ten lakh rupees in a special category state) in the preceding financial year;

This means services provided by a partnership firm of advocates or an individual as an advocate or a senior advocate to a business entity having turnover of more than rupees 20 lakhs in preceeding financial year will be taxable under GST.

Apart from this, no legal service will attract GST.

REVERSE CHARGE - The Ministry of Finance has clarified that the Goods and Service Tax on services provided by lawyers including Senior Advocates and law firms would be applicable on ‘reverse charge’ basis.

This clearly means that legal services provided by a partnership firm of advocates or an individual as an advocate or a senior advocate to a business entity will be taxed on reverse charge basis and the onus to pay tax to the government will lie on the business entity and not the partnership firm of advocates or an individual as an advocate or a senior advocate. 

UPDATE - CBEC has issued a clarification, following which all legal services will be covered under reverse charge mechanism.

Notification no 13/2017 dt 28 June 2017 has been amended, wherein the description of legal services has been changed to bring all the legal services under the RCM.

The earlier provision “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.”,

will now be read as

“Services provided by an individual advocate including a senior advocate or firm of advocates by way of legal services, directly or indirectly."

So, any service provided in relation to advice, consultancy or assistance in any branch of law will be covered under RCM meaning the receiver of service will pay GST instead of supplier of service.