CA Tarannum Khatri

Definition of legal service

As per Notification No.  25/2012-Service Tax, Dated – 20th June, 2012

“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”

(Before 1/7/2012 representative service was exempt) Service providers:

  • Individual advocate
  • Partnership firm of advocate
  • Arbitral tribunal.

According to notification no 25/2012 dated 20/6/12,

If an individual advocate or partnership firm of advocates provides service to

  1. Individual advocate
  2. Partnership firm of advocates
  3. Any person other than business entity
  4. A business entity with a turnover not more than 10 lacks in preceding financial year,

The service is exempt from levy of service tax.

What is business entity?

Any person (individual, firm, HUF, company etc) carrying out any activity relating to industry, commerce or business or profession.

That means utilization of legal service for personal purposes is exempt.

When to pay the tax and by whom?

If business entity that has turnover more than 10 lacks in preceding financial year receives legal service, business entity has to pay whole service tax under reverse charge mechanism.

Some advocates provide service related to income tax, vat, pf, esic matters, all these services are covered under legal services because it is assistance in any branch of law.

If lawyer provides service other than legal service, it is taxable as per taxability of that service. Exemption is only for legal service.

Cenvat credit:

If business entity pays service tax under reverse charge, it can take cenvat credit for it and utilize it for payment of service tax and excise.

Legal service is input service as per definition (rule 2(1) of cenvat credit rules, 2004)

Let’s understand the concept from following chart:

Service provider Service receiver Who will pay service tax?
Individual advocate Individual advocate exempt
Firm of advocate Individual advocate exempt
Firm of advocate Firm of advocate Exempt
Individual/firm of advocate Person utilize service for personal purposes Exempt

 

Firm of advocate Business entity having turnover less than 10 lacks preceding f.y. Exempt
Firm of advocate Business entity having turnover of more than 10 lakhs preceding f.y. Business entity under reverse charge-100%
Firm of advocate Business entity outside India Exempt
Arbitral tribunal Firm of advocate exempt

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Category : Service Tax (3288)
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39 responses to “Service Tax on Legal Services under Reverse Charge Mechanism”

  1. vinaya says:

    I AM GIVING CONSULTANCY SERVICES WHETHER I CAME UNDER RCM

  2. Deepak says:

    My client has taken consultancy services (in the name of professional services) for a case from an advocate however such advocate is not appearing for him in court. Whether service tax under reverse charge should be paid or not??

  3. MD SHAKIL says:

    Dear all,.

    I have an individual client serving for a Pvt Ltd co.as manpower supplier.
    He provided services for 1500000(say) for Oct’15-June’26 but did not get any service tax and filed nil return.
    Now, I want to know, will the return be nil or any thing else because I tried to file return by mentioning the amounts for different months with nil tax rate but I failed.
    If possible, pl advise stepwise to file return.

  4. Bala Sundaram says:

    If Service provider is a Sr Advocate & provides legal services to business entity whose turnover in preceding financial year is more than 10 lacs then who is liable to pay service tax ? whether service provider or service receiver. The service Provider is raising the bill w/o Service Tax . Is reverse tax mechanism applicable or not

  5. Vikesh Agrawal says:

    Yes it will be liable to service tax @14% on 48000/- under reverse charge,
    condition is only that you crossed the limit 10lakh in preceding year.

  6. Som Nath Das says:

    Dear Sir,

    My advocate provided legal services of Rs.48000/- and we already deducted TDS @ 10% under 194 J in financial year 201-16 also we are Pvt. Ltd. company my point is that Lawyer consultancy will come on Under Reverse Charge Method. So we have to deposit service tax on behalf of Lawyer if yes then how much would be Rate 14% or ?

    Regards,

    Som Nath Das

    • Prakash Chand Tiwari says:

      Dear Sir,

      My advocate provided legal services of Rs.5500/- for a labour case matter we are Pvt. Ltd. company my point is that Lawyer consultancy will come on Under Reverse Charge Method. So we have to deposit service tax on behalf of Lawyer

      Regards,

      Prakash Chand Tiwari
      9718312412

  7. CA Ram Talluri says:

    Sir, Greetings.
    We have availed Legal services from Singapore Legal firm for IPO related services. Whether RCM is applicable to this?

    • RABIN MUKHERJEE says:

      Sir, please send reply of my query & updated notification on service tax & tds in my below mention mail ID.

      Regs/Rabin

  8. Anil Khanna says:

    Services Provided by Other Consultants like Mechanical Consultant is this covered by reverese Charge Machanism

  9. CA Ronak Kothari says:

    @ Vinay Pandey
    As per your version you have charged service tax on your bill, which could only be done after taking Service Tax Registration.

    Filing of return is compulsory once registration has been taken, even if it may be a nil return, within the prescribed time limit, failing which penal action can be attracted.Thus to prevent yourself from haressment and litigations, it is advisable to file NIL returns before the due dates.

  10. Vinay Pandey says:

    Sir

    I am partner of law firm and we’re liable to charge service and we did. But after notification came through which service tax on legal service became under reverse charge mechanism.

    Should we still file service tax return ?

  11. Nilesh says:

    While paying the S.T on Advocates bill under RCM ,
    Does Advocate require to registered with Bar Council ??

    Kindly clarify …

  12. sachin verma says:

    Sir,

    Our Bills are consultancy of Rs. 2000/- What are the charged service tax said amount.

    please tell.

  13. Sanjay says:

    >> 4. A business entity with a turnover not more than 10 lacks in preceding
    >> financial year

    What is the scope of term “turnover” here?
    Does it cover only saled or is it income?

    Does a business entity that does not have any sales turnover, but whose income from investments is > 10Lakhs fall under the scope of this clause?

  14. Tony Khatri says:

    In case where legal services provided by advocate to business entity and turnover of business entity exceeds 10lakhs in previous fy, ST tax is applicable under RCM 100%,
    how will business entity get credit if advocate doesnt have ST Registraiom No.

  15. Tony Khatri says:

    In case where legal services provided by advocate to business entity and turnover of business entity exceeds 10lakes n previous fy, ST tax is applicable under RCM 100%,
    how will business entity get credit if advocate doesnt have ST Registraiom No.

  16. Tarannum says:

    At veera bhadra, your question is not clear, still I am giving small highlights of reverse charge mechanism

    Service provider of manpower service is required to charge 75% of 12.36% on bill when there is reverse charge mechanism. RCM will be applicable when individual, HUF , proprietory, partnership firm provides service to body corporate (company).
    Remaining 25% of 12.36% is required to paid by company under RCM himself.

    Company can take cenvat credit for amount paid as service tax under RCM.

  17. VEERA BHADRA says:

    Please explain any one i have received bill manpower recruitment .
    25% included in bill. i will paid to amount with 25% to service provider.

    Now iam paid on 25% service tax input vailable or not means nenu a 25% amount serivice tax thisukovacha Leda please tell clarify any one .

    This is my number 89770 11235

  18. VEERA BHADRA says:

    Dear all if iam provider of service ( Man Power ) I will give you bill 10000 % 25% on service tax 10,309\- if iam service receiver service tax input take or not on 25% receive amount. actually entry is

    Dr Cr
    Causal Labour Charges 10,309\-
    Service TAx on Input service 927\-

    Man power supplier ( veera bhadra consultancy) 9800

    service tax payble on 75% Amount 927\-
    tda payable on manpower recruitment 200

    Pleae explain this entry 25% we have taken input when i Paid to service provider amount. This is correct or wrong Please explain any one.
    This is veera bahdra
    89777011235

  19. Mithun Patel says:

    We have appointed advocate to present our case before labour court. He has not charged S.T amount in his Invoice, wheather it was correct or not.

    • catarannum says:

      @MITHUN.. if you have turnover less than 10 lacks, it is exempt. But if you are business entity and turnover of the business is more than 10 lacks, 100% service tax should be paid by you under reverse charge.Case of labor law is also legal service.

  20. catarannum says:

    No, there is no limit like more than Rs. 10000 is out of reverse charge mechanism. There are different rules for different services for reverse charge. I have written this article only on rules for reverse charge on legal services.

  21. Lokesh says:

    Dear Sir,
    Hope you are fine.
    Please let me know is there any limit on bill amount for reverse charge appliocability.
    Somewhere i heard that bills of more than Rs.10,000 are not subject to reverse charge service tax.
    – See more at: https://taxguru.in/service-tax/service-tax-legal-services-reverse-charge-mechanism.html#comment-1228957

  22. Lokesh says:

    Dear Sir,

    Hope you are fine.

    Please let me know is there any limit on bill amount for reverse charge appliocability.

    Somewhere i heard that bills of more than Rs.10,000 are not subject to reverse charge service tax.

  23. Gaurav says:

    sir,
    let me clear that we are paying to Advocte for adjudicating proceedings related to sales in USA(outside India).But we are paying to that advocate from india,i.e from our Head office.

    Whether we are liable to pay service tax under reverse charge,if adjudication proceedings is related to sales.

  24. Gaurav says:

    sir,
    let me clear that we are paying to Advocte for adjudicating proceedings related to sales in USA(outside India).But we are paying to that advocate from india,i.e from our Head office.

    Whether we are liable to pay service tax under reverse charge,if adjudication proceedings is related to sales.

  25. Gaurav says:

    sir,
    let me clear that we are paying to Advocte for adjudicating proceedings related to sales in USA(outside India).But we are paying to that advocate from india,i.e from our Head office.

    Whether we are liable to pay service tax under reverse charge,if adjudication proceedings is related to sales.

  26. catarannum says:

    Manoj sir,

    If travel and meal expenses are related to provision of legal services, they are naturally bundled services and RCM will also applicable to them. In that case, you have to pay tax under RCM for gross amount. Please refer bundled services rule for clarity.

  27. manoj says:

    Dear

    please let me confirm,we are taking legal service from advocate,advocate raise the bill included meal & travel exp, my ques is that the RCM will applicable on gross amt.or just on the legal service amt.

    thanks in advance

  28. ganeshan says:

    Sir,
    we have advocate he has provided service of Audit fee, Vat assessment to us (company)and raised bill. Do we need to pay service tax under reverse charge mechanism ? Is this not a Professional service and not Legal service ?

    • catarannum says:

      It is legal service. Because legal service means any service which is provided under any law.I have clarified in the article. If you are business entity, you have to pay service tax under reverse charge for vat related work and audit fees.

  29. catarannum says:

    Krishna

    Service receiver is liable to pay service tax under reverse charge mechanism.

  30. manish says:

    Can we really utilize cenvat credit in discharging service tax liability of legal service only if we are a business entity having turnover more than 10 lakhs?

  31. catarannum says:

    the definition of business entity is as per education guide of service tax and new definition of business entity (sec 65B) effective from 1 july 2012.So there is change in definition of business entity with effect from 1/7/12.

  32. ASHOK KHIANI says:

    CA TARANNUM KHATRI’S ARTICLE dated 15 April 2014 – “SERVICE TAX ON LEGAL SERVICES UNDER REVERSE MECHANISM”.The article says that even an “individual” is a business entity and has to pay service tax on legal services availed of by him, under the reverse charge mechanism.
    However, please note the DEFINITION OF BUSINESS ENTITY AS PER SECTION 65 (SERVICE TAX – CHAPTER V OF THE FINANCE ACT, 1994)- 1(19B)”BUSINESS ENTITY” INCLUDES AN ASSOCIATION OF PERSONS, BODY OF INDIVIDUALS, COMPANY OR FIRM BUT DOES NOT INCLUDE AN INDIVIDUAL.
    As per above definition therefore Individual is not a ‘business entity’ for the purpose of Service Tax and is therefore ‘Exempt’. Please clarify.

  33. Krishna Lokapur says:

    If Service provider is individual & provides legal services to business entity whose turnover in preceding financial year is more than 10 lacs then who is liable to pay service tax ? whether service provider or service receiver

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