Navigate GST on legal services with clarity! Explore exemptions, tax liabilities under Forward and Reverse Charge Mechanism, and GST registration requirements. This comprehensive guide breaks down legal services’ taxability, defines key terms, and provides insights for advocates and businesses. Stay informed and ensure compliance in the complex landscape of GST on legal services.
GST on legal services provided by Individual Advocate, Senior Advocate and Partnership Firm of Advocates- This article addresses the confusion among various advocates regarding the exemption notification, tax liability under Forward Charge Mechanism (FCM) or Reverse Charge Mechanism (RCM), and the need for GST registration. It explains the definition of legal services, their categorization into representational and non-representational services, and their taxability under the GST Law. The article also defines the terms “advocate” and “senior advocate,” clarifies the difference between advocates and lawyers, and provides insights into the taxability of legal services under RCM. Additionally, it highlights the exemption available for certain legal services and discusses the requirement for GST registration based on turnover and the export of legal services.
Various Advocates (Practice in Civil, Criminal and/or Tax) are having confusion whether they are covered under any Exemption Notification [Notification No.12/2017 – Central Tax (Rate) dated 28th June, 2017] or they will have to pay the tax liability under Forward Charge Mechanism (‘FCM’) or Reverse Charge Mechanism (‘RCM’). Not only this, they also confused whether they will have to obtain registration under GST under mandatory provisions.
It is common in practice where Advocates provides different kind of services to their clients. They provide consultancy or advice or drafting work to/for their client in any matter. They also represent their clients before any Court, Tribunal or Authority in India. Moreover, it is also seen that they play crucial role as an Arbitrator or Mediator to arrive in settlement of the dispute between with other opposing party.
In view of the above, the basic question which comes into the mind is “whether any kind of services provided by the Advocates to their clients is taxable or only selective services are taxable under GST Law?” To give the answer of the above question in straight way is not an easy job. The taxability of legal services under GST law is much complicated.
Question: What are Legal Services that has been defined under GST Law?
Answer: Legal Service has been defined by the Government through their Notification. As per Para 2(zm) of Notification No.12/2017 – Central Tax (Rate) dated 28th June, 2017 –
“Legal service 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;”
By the above definition, it is needless to say that Legal Service would include rendering legal opinion, advice, consultancy, technical assistance in legal matter and appearance before court, tribunal and various judicial and quasi-judicial authorities for and on behalf of the clients.
To more explore, the Legal Service can be categories into two different categories one as
- Representational Service and
- Others Service (i.e. ‘Non-representational Services’ or service other than Representational Service)
It is also pertinent to mention that by go through the above definition, it is clear that it hardly any matter to provide the legal service (Representational as well as Non-representational) by Advocates or other Professionals like Chartered Accountant or Company Secretary. Means, Legal Service can be provided by Advocates or other Professionals to their clients. But taxability will depend whether it is exempted or taxable or taxable under FCM or RCM.
Question: Whether legal services are taxable under the GST Law?
Answer: If any service is covered under the definition of supply and is not exempted, it will be taxable under GST law. It is clear that ‘Legal Services’ are covered under the definition of supply under Section 7 of the Central Goods and Services Tax Act, 2017 (CGST Act, 2017). But whether it will be taxable under FCM or RCM depends on the Notifications issued by the Government in this regard.
Please note that Section 9 of the CGST Act, 2017 empowers the Government to issue Notification to covers Services or Goods or both under RCM (where tax is to be paid by recipient).
It is pertinent to note that the Government has used its power mentioned in Section 9 of the CGST Act, 2017 by issued a Notification No.13/2017 – Central Tax (Rate) dated 28th June, 2017 [RCM Notification] to bring Advocate Services under RCM.
Question: Is there any exemption to legal services under the GST Law?
Answer: The Government has issued a Notification No. 12/2017 – Central Tax (Rate) dated 28th June, 2017 [Exemption Notification] regarding exemption of various services. Entry No. 45 of the said Exemption Notification is concerned with exemption to ‘Legal Service’.
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Sl. No. |
Chapter, Section, Heading, Group or Service Code (Tariff) | Description of Services | Rate (per cent.) | Condition |
| 45 | Heading 9982 or Heading 9991 | Services provided by-
(a) an arbitral tribunal to – (i) any person other than a business entity; or (ii) a business entity with an aggregate turnover up to twenty lakh rupees (ten lakh rupees in the case of special category states) 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 an aggregate turnover up to twenty lakh rupees (ten lakh rupees in the case of special category states) in the preceding financial year; (c) a senior advocate by way of legal services to- (i) any person other than a business entity; or (ii) a business entity with an aggregate turnover up to twenty lakh rupees (ten lakh rupees in the case of special category states) in the preceding financial year. |
NIL | NIL |
Question: Who are an Advocate and Senior Advocate?
Answer: Under the aforesaid said exemption notification ‘Legal Services’ are categorized in two different categories- one ‘Senior Advocates’ and second one for ‘Advocates other than Senior Advocates’. Therefore, it becomes necessary to know about the terms Senior Advocates and Advocates other than Senior Advocates.
As per Para 2(zzd) of Exemption Notification– “Senior Advocate” has the same meaning as is assigned to it in section 16 of the Advocates Act, 1961.”
Section 16 of the Advocates Act, 1961 provides that Senior Advocate means-
“an advocate, may with his consent, be designated as senior advocate if Supreme Court or a High Court is of the opinion that by virtue of his ability standing at Bar or special knowledge or experience in law and he is deserving of such distinction.”
So, we can say that ‘Senior Advocate’ means an advocate who may be designated as senior advocate by the Supreme Court or by any High Court in the country. From time to time the Supreme Court or the High Courts would designate certain lawyers satisfying the above conditions as senior advocates.
Further, as per Para 2(b) of Exemption Notification, “Advocate” has the same meaning as is assigned to it in clause (a) of sub-section (1) of section 2 of the Advocates Act, 1961.
Section 2((1)(a) of the Advocates Act, 1961 provides that
“Advocate” means an advocate entered in any roll under the provisions of this Act.
“Roll” means a roll of advocates prepared and maintained under this Act. [Section 2 (k) of Advocates Act, 1961]
Please note that 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.
Question: Is there any difference between Advocate and Lawyer?
Answer: By the above, we can say that Advocates are those ‘Law Graduate Persons’ who are registered in Bar Council of India or in the Bar Council of any State. They can represent a client in the court of law, speak on behalf of a client, plead their case, etc.
Therefore, ‘Law Graduate Persons’ who is not registered in Bar Council of India or in the Bar Council of any State, may be called simply as Lawyers. To become Advocate, it is essential for the person to put his name in roll of advocates prepared and maintained under the Advocates, Act 1961.
It is pertinent to note that Lawyers can give legal advice but are not eligible to stand in court of law on behalf of their clients. Both these categories are differently treated under the GST law.
Question: Who is business Entity under GST?
Answer: As per Para 2(n) of Exemption Notification, “business entity” means any person carrying out business, and business has been defined under 2(17) of the CGST Act, 2017.
Question: Describe the taxability of legal service under RCM?
Answer: As mentioned above, the Central Government has empowered under Section 9 of the CGST Act, 2017 to issue notification to covers Services or Goods or both, where tax is to be paid by recipient under RCM. Therefore, in exercise of the powers conferred by sub-section (3) of section 9 of the CGST Act, 2017, the Government has issued a Notification No. 13/2017 – Central Tax (Rate) dated 28th June, 2017 regarding list of services under RCM. Entry No. 2 of the said RCM Notification is concerned with ‘Legal Service’.
Entry No. 2 of RCM Notification–
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Sl. No. |
Categories of Supply of Services | Supplier of Service | Recipient of Service |
| 2 | Services provided by an individual advocate including a senior advocate or firm of advocates by way of legal services, directly or indirectly.
Explanation- “Legal service” 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. |
An individual advocate including a senior advocate or firm of advocates. |
Any business entity located in the taxable territory |
Further, more in regard to the aforesaid mentioned Entry No. 2 a clarification regarding, inter alia, legal services was issued vide Circular No. 27/01/2018-GST dated 04.01.2018– Reverse Charge.
Question/Clarification sought- Whether legal service other than representational services provided by an individual advocate or a senior advocate to a business entity are liable for GST under reverse charge mechanism
Clarification: Yes. In case of legal services including representational services provided by an advocate including a senior advocate to a business entity, GST is required to be paid by the recipient of the service under reverse charge mechanism, i.e., the business entity.
Question: Draw a conclusion for taxability of Legal Services?
Answer: In view of the above, it is clear that ‘Legal Services’ other than exempted legal services are taxable under the GST Law. Under the GST Law, services (except special categories) are taxable @ 18%, but not directly on the hands of the Advocates but under RCM Mechanism as per the RCM Notification issued by the Government. The following ‘Legal Services’ provided by Advocates, Senior Advocates or firm of Advocates are taxable-
A. Legal Service provided by Senior Advocate to a Business Entity with an aggregate turnover exceeds ₹ 20 lakh (₹ 10 lakh in the case of special category States) in the preceding financial year.
B. Legal Service provided by a Firm of Advocates or an Individual Advocate other than a senior advocate to a Business Entity with an aggregate turnover exceeds ₹ 20 lakh (₹ 10 lakh in the case of special category States) in the preceding financial year.
C. There are instances where, advocates engage foreign advocates to serve their client located abroad against which foreign advocate issued bills to Indian advocates / advocate firms. In such cases, it is important to note that services supplied by foreign advocate cannot enjoy exemption of Notification No.12/2017 – Central Tax (Rate) dated 28th June, 2017 in the hand of the foreign advocate due to the reason that the foreign advocate is not on the ‘Roll’ of bar council of India (thus not qualified as an “ advocate” as defined in the Advocate Act/GST law) and hence their supplies are taxable under RCM in the hands of service receiver (advocates who engaged foreign advocates).
It is very pertinent to note that the above are the Legal Services under the RCM, as envisaged in Sections 2(98) and 9(3) of the CGST Act, 2017 and Entry No. 2 of RCM Notification.
Arbitration Services: Regarding Arbitration Services also, if it is provided by arbitrator to business entity with an aggregate turnover above ₹ 20 lakh (₹ 10 lakh in the case of special category States) in the preceding financial year, it become taxable but on otherwise exempted. Here also the Business Entity being the recipient of arbitral service needs to pay tax under RCM.
Question: Is GST registration mandatory for Legal Services?
Answer: The legal provisions are as under-
1. A person engaged in supply of services having turnover exceeding ₹ 20 lakh shall be mandatorily required to take registration. [Section 22 of CGST Act, 2017]
2. A person engaged exclusively in supplying services wholly exempt from tax is not required to obtain registration. [Section 23(1) of CGST Act, 2017]
3. A person engaged in supplying of services where entire tax is payable under RCM is not required to obtain registration. [Notification No. 5/2017 – Central Tax dated 19th June, 2017];
4. A person engaged in supplying inter-state services is mandatorily required to obtain registration without turnover limit [Section 24 of CGST Act, 2017]. However, vide Notification No. 10/2017–Integrated Tax, dated 13.10.2017, if aggregate value of supplies in inter-state services is up to ₹ 20 lakh (₹ 10 lakh in the case of special category States) in the preceding financial year, registration is not required.
5. Please note that Export of Services is considered as inter-state transactions; therefore Section 24 of CGST Act will be applicable.
Remarks:
1. If Advocates are engaged in supply of exempt services only, then there is no need to obtain registration under GST.
2. If Advocates are engaged, wholly, in supply of services where entire tax is payable under RCM, then there is no need to obtain registration under GST.
3. If Advocates are engaged in supply of services (whether Inter-State or Intra-State) and aggregate value of supplies of services is more than ₹ 20 lakh (₹ 10 lakh in the case of special category States) in the preceding financial year, then they are mandatorily required to take registration.
4. Please note that if Advocate engaged in supply of services less than Rs. ₹ 20 lakh (₹ 10 lakh in the case of special category States) in the preceding financial year and having any other income by which aggregate turnover exceed ₹ 20 lakh then it is required to take registration in GST. It is pertinent to note that for calculation of ₹ 20 lakh limit, all kind of supplies, taxable, interstate, exempt, export, RCM output, Nil rated to be clubbed.
Question: What is legal position in case of export of Legal Services?
Answer: As per RCM Notification, RCM is applicable on legal services provided to Business Entity. In case services are provided outside India, then RCM is not applicable as the Business Entity is located outside taxable territory.
Export of Services is considered as inter-state transactions, therefore, Section 24 of CGST Act will be applicable and registration is mandatory. A person engaged in supplying inter-state services is mandatorily required to obtain registration without turnover limit [Section 24 of CGST Act, 2017]. However, vide Notification No. 10/2017–Integrated Tax, dated 13.10.2017, if aggregate value of supplies in inter-state services is up to ₹ 20 lakh (₹ 10 lakh in the case of special category States) in the preceding financial year, registration is not required.
Question: What is legal position in case of import of Legal Services?
Answer: There are instances where, Advocates engage Foreign Advocates to serve their client located abroad against which Foreign Advocate issued bills to Indian Advocates / Advocate Firms. In such cases, it is important to note that services supplied by Foreign Advocate cannot enjoy exemption of Exemption Notification in the hand of the foreign advocate due to the reason that the Foreign Advocate is not on the ‘Roll’ of bar council of India (thus not qualified as an “ advocate” as defined in the Advocate Act/GST law) and hence their supplies are taxable under reverse charge mechanism in the hands of service receiver (advocates who engaged Foreign Advocates.)
Question: Whether ITC can be availed on legal service?
Answer: Input Tax credit cannot be availed in case of Legal services provided in India as the output supplies are taxable at recipient end under RCM. As per Section 16 of IGST Act, 2017, exports are zero-rated supplies and Input Tax credit can be availed in relation to export of services. Such Input Tax would be refunded to the taxpayer.
Question: Whether reimbursement of expenses charged by Advocates is taxable?
Answer: It is pertinent to note that taxability of reimbursement of expenses depends on nature of expenses incurred for provision of services by Advocates. If these kinds of expenses are in nature of ‘Pure Agent’ than there is no need to pay tax.
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Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the author whatsoever and the content is to be used strictly for informational and educational purposes. While due care has been taken in preparing this article, certain mistakes and omissions may creep in. the author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.
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very well researched and written in very lucid language , appreciated .