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June 11, 2020

Know GST Provisions & Applicability to Professionals in the Legal Sector

by Rubina Dsouza in GST

Know GST Provisions & Applicability to Professionals in the Legal Sector

Introduction

Many a times we are faced with a situation where we seek legal advice. Through this article let us get acquainted with how legal professionals like advocates, lawyers are taxed under GST.

Let us first understand what certain terms mean to obtain a better understanding of the applicable GST Provisions.

1. Legal service

It means 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. Examples of legal services may include representation before court, provide law advice, carrying out litigation and so on.

Exemptions and other provisions in respect of Legal Services are used only in the context of advocates or a firm of advocates. Therefore, a Chartered Accountant providing legal advice in relation to commercial laws though covered by definition of legal services is not considered under any reverse charge mechanism (RCM) provisions or exemption provisions.

2. Advocate

Advocate means an advocate entered in any roll under the provisions of Advocates Act, 1961. Advocate on roll in India means advocate whose name is entered in register of advocate prepared by Bar Councils. In case of foreign lawyers, they are not to be treated as an advocate in India as they are not on roll of advocates of any bar councils in India.

3. Senior Advocates

An advocate, with his consent, may be designated as senior advocate if the Supreme Court or a High Court is of that opinion that by virtue of his ability, [standing at the Bar or special knowledge or experience in law] he is deserving of such distinction.

4. Arbitral Tribunal

Arbitral tribunal means a sole arbitrator or a panel of arbitrators which in convened to resolve a dispute by arbitration.

Let us understand how services provided by advocates, senior advocates, arbitral tribunals treated under GST

Fully exempt Services [Notification No. 12/2017- Central Tax (Rate) and Notification No. 9/2017-Integrated Tax (Rate)]

SupplierRecipient
An arbitral tribunalany person other than a business entity; ora business entity with an aggregate turnover up to Rs 20 lakhs (Rs 10 lakh for special category states) in the preceding financial year;
Individual advocate (other than senior advocate) or partnership firm of advocates providing legal servicesan advocate or partnership firm of advocatesany person other than a business entity; ora business entity with an aggregate turnover up to Rs 20 lakhs (Rs 10 lakh for special category states) in the preceding financial year
senior advocate by way of legal servicesany person other than a business entity ora business entity with an aggregate turnover up to Rs 20 lakhs (Rs 10 lakh for special category states) in the preceding financial year

Services which are chargeable under RCM

  1. Services supplied by an individual advocate including a senior advocate or firm of advocates by way of legal services, directly or indirectly to a business entity.
  2. Firm of advocates includes LLP registered under the The Limited Liability Partnership Act, 2008
  3. Services provided by arbitral tribunal to a business entity.

Services which are Taxable under forward charge

Services by senior advocates to any other advocate or firm of advocates are not exempt and taxable under forward charge mechanism.

Let us understand the above provisions with the help of the table give below. It is assumed that none of the parties belong to special category states.

SupplierRecipientTaxable or exemptForward charge or RCM
An arbitral tribunalNon business entityExemptNA
An arbitral tribunalbusiness entity with turnover <= Rs 20 lakhsExemptNA
An arbitral tribunalbusiness entity with turnover > Rs 20 lakhsTaxableRCM
Individual advocate or partnership firm providing legal servicesAdvocate or partnership firm of advocatesExemptNA
Individual advocate or partnership firm providing legal servicesNon business entityExemptNA
Individual advocate or partnership firm providing legal servicesbusiness entity with turnover <= Rs 20 lakhsExemptNA
Individual advocate or partnership firm providing legal servicesbusiness entity with turnover > Rs 20 lakhsTaxableRCM
Senior advocate providing legal servicesNon business entityExemptNA
Senior advocate providing legal servicesbusiness entity with turnover <= Rs 20 lakhsExemptNA
Senior advocate providing legal servicesbusiness entity with turnover > Rs 20 lakhsTaxableRCM
Individual advocate, partnership firm & senior advocate providing non legal servicesNot relevantTaxableForward charge
Senior advocatesAdvocate or firm of advocatesTaxableForward charge

Is registration mandatory for advocates, senior advocates, firm of advocates etc?

  1. A person engaged in supply of services having turnover exceeding Rs.20 lacs shall be mandatorily required to take registration
  2. A person engaged exclusively in supplying services wholly exempt from tax is not required to obtain registration
  3. A person engaged in supplying intra-state services is exempted from obtaining registration where entire tax is payable under RCM

What is the treatment when legal services are provided to a person located in non-taxable territory under GST?

  1. RCM is applicable on legal services provided to Business Entity located in the taxable territory. Therefore, if services are provided outside India, then RCM is not applicable.
  2. In case of legal services, services provided outside India qualifies as Export of Services provided all conditions are fulfilled.
  3. Export of Services is considered as inter-state transactions. Therefore, Section 24 of CGST Act will be applicable and registration is mandatory.
  4. Export can be done in two ways either on payment of IGST on export supplies or by filing Letter of Undertaking.
  5. As per rule 96A of CGST Rules, 2017, if the foreign inward remittances are not received within 1 year from the date of invoice, then the exporter has to deposit IGST from his own pocket.

What is the tax rate applicable on such services?

GST Tax is chargeable @18%

Can advocates avail the benefit of Input Tax Credit (ITC) ?

  1. ITC cannot be availed in case of legal services provided in India as the output supplies are taxable under RCM.
  2. As per Section 16 IGST Act, 2017 exports are zero-rated supplies and ITC can be availed in relation to export of services. Such Input Tax would be refunded to the taxpayer.

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