Many legal outfits will not come within the purview of the service tax proposed to be imposed on legal consultancy services as they operate as sole proprietorships, say experts.
As the service tax will apply on advice provided by a business entity to another business entity, sole proprietorships will not come within the purview of the proposed service tax.
Expressing similar opinion, Atul Gupta, member of the ICAI executive committee (northern region) said, “as sole proprietorships are not business entities they will not be required to pay service tax. This is a discrepancy and needs to be corrected.”
Many of the legal outfits, which provide consultancy services to corporates that include drafting merger and acquisition agreements, preparing MoUs, rendering advice etc, operate as sole proprietorships.
Only law firms, which are business entities under the Indian Partnership Act or the Limited Liability Partnership Act, will be have to pay service tax on fees charged from corporates,
While proposing to extend the ambit of service tax to cover legal advice and consultancy, Finance Minister Pranab Mukherjee in his budget speech clarified, “This (service tax) will not be applicable in case the service provider or the service receiver is an individual.
So even if an individual lawyer working independently as consultant to for different IT and ITES companies earns around Rs20 lacs per annum as consultancy fees he would still not be required to charge service tax on his clients? Is it the position as on April 2010?