GST is a kind of tax which is indirect in nature. It is imposed on every good or service we buy. The seller of those goods and services take extra money from the consumers and send it to the government. This extra money is the tax on those goods and services. Only the sellers who have registered their business or services on the GST online portal and have a unique number can charge GST on the things they sell. However, a question arises here is can lawyers in India too charge GST or is GST applicable to legal consultancy fees of the lawyers on the legal services they provide. In this blog, we shall analyze the answer to this topic in depth.
Requirements of GST Registration for Advocates and Law Firms
GST registration is the most important condition of every seller. It has to be fulfilled in order to be eligible to collect the GST from consumers. GST registration is very important for all who offer legal services as well, this is because GST applicable to legal consultancy fees of the lawyers as well. Some of the key requirements of the GST registration for the advocates and legal service providers are:
Fall Under the Threshold Limit
If the earning of an advocate is more than the GST registration threshold then only GST applicable to legal consultancy fees of the lawyers otherwise it is not applicable on the services of the advocates or law firms. Hence in order to get the goods and services registration or applicability of the same on the advocates threshold limit is very necessary to be met.
Inter State Services
If the advocates provide legal aid or legal services to persons of another state in that case GST applicable to legal consultancy fees of the lawyers and they need to be registered under the goods and services tax laws of India. In this scenario threshold limits cannot come into picture. Whatever turnover they have they need to register under the GST laws.
Reverse Charge Mechanism
Section 9(3) of the CGST Act which came in 2017 talks about the reverse charge mechanism. In general, the suppliers are the ones who take GST from the consumers and forward it to the government. However, there is an exemption to this is the Reserve Charge Mechanism. In this the ones who receive the legal services are responsible to pay the GST to the government.
If a corporate body such as corporate firms or corporate companies, renders services then the tax must be paid by the receiver of the service to the government. There is no responsibility of the corporate body to forward the tax to the government. This is the process of reverse charge mechanism.
Taxability of Legal Services or Individual Advocate or Law Firms
Whether it is a legal firm or an individual advocate, if they are coming under the threshold limit of the goods and services tax then they have to register themselves under the same. As per the GST law, services provided by the advocates either a junior advocate or senior advocate will be considered as the supply of services under the GST law, hence GST applicable to legal consultancy fees of the lawyers as well.
India divided products and services into five tax slabs to collect taxes which are 0%, 5%,12%,18%,28%. On the legal services 18% tax slab will be applicable. This slab is applicable on the entire fees of the advocate which includes fees for the drafting, appearance, hearing etc.
Are Advocates allowed to do GST Voluntary Registration?
All those providing legal services can also register for GST voluntarily, even if the income does not exceed the threshold limit. Most advocates voluntarily do the registration to gain benefits of Input tax credit (ITC). Let us understand ITC with an example. If you had made a purchase of Rs 1 lakh and paid Rs 1,8000 as GST. Then if you sell it for Rs 2 lakh, you obviously receive Rs 36,000 as GST from buyers. Now it is your duty to pay the GST to the government. However, if you claim ITC, then you have to forward only Rs 1,8000 to the Government.
Exceptions of GST Applicable to Legal Consultancy Fees
Advocates and firms who provide legal aid have to collect and pay the GST to the government. The GST charged by advocates on legal services is 18%. The GST is charged on the total fee of the advocate. The total fee here means the money charged for appearance, drafting of documents, legal advice etc. However, where the per day fee of Rs 1000/- or less is charged by the advocate, then there is no requirement of GST here. Moreover, where legal services are given to Government, local authorities etc. then also no GST will be charged. It is mandatory for the advocates and firms etc. to follow the GST laws strictly. They have to maintain all records of tax payments, tax bills, and filing GST returns regularly. If they do not follow these things, then they can be punished.
When GST is not Applicable on Advocates in India?
In the following situations GST applicable to legal consultancy fees of the lawyers is exempted:
Threshold Limit
If the income of an advocate or law firm or group of advocates is less than Rs 20 lakh annually, then there is no need of GST registration for them as GST will not be applicable to legal consultancy fees of the lawyers in that case. Still if they want they can do voluntary registration under the GST laws of India.
Services to Senior Advocates
This is also an exception for the legal professionals who are senior advocates. It is not applicable on all the advocates because it is specifically for the senior advocates. If one senior advocate provides legal services to another Senior Advocate, then there is no need for goods and services tax registration in India.
Providing Services to Government
This is another exception which is also for the particular type of advocates and not applicable generally on all types of the advocates. Advocates working on legal matters of the Government do not need to get goods and services tax registration under the Goods and Services Tax Act of 2017 of India.
Providing services to Court or Tribunal
In certain cases or in matters advocates also provide their services to the courts or tribunals as well in this scenario they don’t need to register themselves under the Goods and Services Tax Act of 2017 because in such scenario where advocates provide their legal services to court or tribunal, they are exempted from taking goods and services tax registration.
Legal Services to Individuals
If the advocate charges per day fee of Rs 1000/- and less to any person, then they are exempted from GST. Even though the above mentioned people do not need GST registration, then also it is their duty to do certain things. Such as follow the GST laws strictly, keep records, file GST returns regularly etc.
GST rates and HSN or SAC Codes for Legal Service Providers
The legal services offered by advocates, senior advocates and firms are classified into Service Accounting Code (SAC) 998212. They have some SAC codes allotted to all. They are given below:
- For legal consultancy HSN/SAC is 998212
- For drafting legal documents the HSN/SAC is 998212
- For representation before court the HSN/SAC is 998212
- For any kind of arbitration services the HSN/SAC is 998213
Conclusion
GST is the most significant topic of today, which is affecting everyone, be it a common man or a wealthy seller, as it is imposed on almost each and every product and services which we render or buy. Surprisingly, GST applicable to legal consultancy fees of the lawyers, advocates and law firms as well. The fixed rate of 18% GST applicable to legal consultancy fees of the lawyers. It is very important for the legal service providers to do the registration of GST if they fall under the category of service providers who need to register under the same. This makes them eligible to collect tax from the individuals they serve.
