Tally

Share on Facebook

Share on Twitter

Share on LinkedIn

Share on Email

Share More


Advocates have the privilege of not paying GST on their output supply, while the tax on their supplies has to be paid by recipients under the Reverse Charge Mechanism (RCM). In this write up, I have tried to answer questions related to GST on Advocate Services.

Let us discuss in Frequently Answered Questions (FAQ) format for more clarity and understanding: -

1. Who is an advocate and Senior Advocate?

“Advocate” means an advocate entered in any roll under the provisions of this Act (Section 2 (a) of Advocates Act,1961) and “Roll” means a roll of advocates prepared and maintained under this Act. (Section 2 (k) 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.

As per section 16 of Advocates Act 1961, Senior Advocate is an advocate for whom Supreme Court or High Court is of the opinion that by virtue of his ability or standing at Bar or special knowledge or experience in law and he is deserving of such distinction.

GST on Individual Advocates including Senior Advocates and Firm of Advocates

2. What are legal services?

As per Notification 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;”

Advocates provides services in the areas of compliances, advisory and litigation per-se.

3. Is it a taxable supply?

To check taxability, first to check whether sale or services covers under definition of supply or not. Legal services cover under definition of supply under section 7 of CGST ACT, 2017. For levy of tax, one must look Section 9 of the CGST Act,2017. It empowers government to issue notification to covers Services or Goods or both, where tax is to be paid by recipient under RCM.

Advocate services bring into ambit of Reverse Charge Mechanism vide Notification No. 13/2017 – Central Tax (Rate) dated 28th June, 2017. Entry No. 2 of the notification (updated by Corrigendum dated 25th September,2017) is: -

“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.”.

4. What are the GST exemptions available to advocates?

Entry No. 45 of Notification No. 12/2017 – Central Tax (Rate) dated 28th June, 2017 exempt services provided by: -

  • A senior advocate by way of legal services to any person other than business entity or a business entity with an aggregate turnover upto Rs. 20 Lakhs in the preceding FY.
  • A firm of advocates or an individual advocate other than a senior advocate, by way of legal services to an advocate or firm of advocates, other than business entity or a business entity with an aggregate turnover upto Rs. 20 Lakhs in the preceding FY.
 

In Crux, Legal Services by advocates or advocates firm to non-business entities, small business entities (turnover less than 20 lakhs) and to advocates or advocate firm is exempt. But services provided by senior advocates to advocate firms or advocate requires suitable clarification from government whether these are exempt or not , as per notification wordings these are taxable.

5. What is position of taxability in case of services provided by Senior Advocates?

By clarification F. No. 354/107/2017-TRU, in has been clarified by government that legal services including representational services provided by an advocate including a senior advocate to a business entity is taxable under RCM, i.e. business entity has to pay tax under RCM.

As mentioned in point above, if the senior advocate provides services to advocate or advocate firm, services are not exempt.

6. Is GST registration mandatory for advocates?

As per Notification No. 5/2017 – Central Tax, registration requirement is exempt if supplies are wholly covered under Reverse Charge Mechanism (RCM). However, if the advocate or advocate firm has any other taxable income and aggregate turnover exceeds Rs. 20 lakhs than it is required to take registration in GST. Its pertinent to note that for calculation of Rs. 20 Lakhs limit, all kind of supplies taxable, interstate, exempt, export, RCM output, Nil rated to be clubbed.

7. What is position in case of Export of Legal Services?

As per Notification No. 13/2017 – Central Tax (Rate), 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.

In case of legal services, services provided outside India qualifies as Export of Services provided all conditions are fulfilled. Hence, RCM is not applicable. Notification No. 5/2017 – Central Tax dated 19th June, 2017, will not be applicable, in full since the Export of Services are not under the ambit of RCM. Export of Services is considered as inter-state transactions; therefore Section 24 of CGST Act will be applicable and registration is mandatory if turnover exceeds Rs. 20 Lakhs

For Export of services, Export procedures under GST must be followed. In pursuance to Notification No. 16/2017 read with Circular No. 8/8/2017, export can be done in two ways either on payment of IGST on export supplies or file Letter of Undertaking.

As per rule 96A of CGST Rules, 2017, the foreign inward remittances must be received within one year from the date of invoice. In case remittance is not received within the prescribed time then exporter has to deposit IGST from his own pocket, which is 18% of such supplies.

8. What is the taxability of Import of Legal Services?

Usually advocates engages foreign advocates to serve their client located abroad. Foreign advocate bills to Indian advocates / advocate firm. Services supplied by foreign advocate can not enjoy exemption of notification 12/2017-CGST(Rate) as the foreign advocate is not on roll of bar council of India and hence their supplies are taxable under RCM in the hands of service receiver.

9. How advocates can avail the Input Tax Credit?

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.

10. What is Tax Rate? When is it taxable under Reverse Charge Mechanism and Forward Charge Mechanism?

Tax Rate on Advocate Services is 18%.

Analysis Table of GST Taxability under Reverse Charge (RCM) and Forward Charge (FCM) is as below

Service Provider

Nature of Service

Service Receiver

Taxability

Notification

Senior Advocate

Legal Services

Senior Advocate

Yes, FCM

12/ 2017 and 13/2017 – Central Tax (Rate)

Individual Advocate

Yes, FCM

Firm of Advocates

Yes, FCM

Non – Business Entity

Exempt

Small Business Entity (Turnover less than 20 Lakhs)

Exempt

Business Entity having turnover more than Rs. 20 Lakhs

Yes, RCM

Firm of advocates or an individual advocate

Legal Services

Senior Advocate

Exempt

12/2017 – Central Tax (Rate) & 13/2017 – Central Tax (Rate)

Individual Advocate

Exempt

Firm of Advocates

Exempt

Non – Business Entity

Exempt

Small Business Entity (Turnover less than 20 Lakhs)

Exempt

Business Entity having turnover more Rs. 20 Lakhs

Yes, RCM

11. What is taxability on reimbursement of expenses charged by advocates?

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 tax need not to be paid otherwise these are taxable. For e.g., Advocate paid legal fees to Government on behalf of client and charge client on actuals, then GST not to be paid by client being all conditions of Pure Agent is fulfilled. But if in the same case, if there is mark-up in expenses, then GST is to be paid. However, in case of expenses other than nature of pure agent, GST is to be paid.

 

Important Points

  1. Law firm registered other than individual or firm of advocates i.e., legal corporate entities, provisions of notifications referred above is not applicable.
  2. Refund of Input Tax Credit or IGST paid on export supplies can be claimed.
  3. It’s advisable that on services provided outside India, advocates must follow export procedures to avoid any dispute in future.
  4. Services other than legal services provided by advocates / advocate firms are taxable as per normal provisions of GST Act.
  5. There is an issue of ‘Excess Tax’ in advocate services as they are not entitled to get the benefit of Input Taxes paid on output domestic supplies reason being the supplies are taxable under RCM. Input taxes become part of cost and charge to client, on which client again pay tax under RCM. It results in ‘Tax on Tax’ i.e. tax on the tax embedded in the cost to client.
  6. Advocates / Advocate firms must mention on bottom of their invoice that taxes are to be paid by service receiver under RCM
  7. JK Mittal case - In pursuance of Mr. J K Mittal Delhi High Court case, government clarify that legal services are taxable under RCM. But still in case of services provided by senior advocates to advocates / advocate firms, suitable clarification is much awaited for exemption.
 

The author can also be reached at gaauravarya@gmail.com


Tags :



Category GST, Other Articles by - Gaurav Arya 



Comments


update