With the approval of a Four-slab rate for taxable services under the proposed Goods and Services Tax (GST), India shifted to a multi-tiered service tax structure from the current uniform 15% levy on eligible services.
As per the schedule of tax rates released by the Central Board of Excise and Customs (CBEC) yesterday, services provided by Lawyers and Law Firms to any person including a business entity having a turnover of below 20 lakhs are exempted under the proposed indirect tax net. Earlier, the turnover limit prescribed was 10 lakhs.
Services provided by the Senior Advocates, which were brought under the tax net in the year 2016 will continued to be taxed under the GST regime. However, the services provided to any person other than a business entity and a business entity having a turnover of below 20 lakhs will be out of the ambit of GST.
Till the year 2016, there were no such distinction made between the Senior and ordinary Advocates in granting exemption from service tax. However, the Budget 2016 withdrawn the tax exemption on services provided by senior Advocates. The Notification issued by the CBEC in March 2016 withdrawn exemption given to a Senior Advocate in respect of services provided to Advocates or Firms of advocates/non-business entities/ business entities having turnover below Rs. 10 lakhs.
The move, intended to widen the tax base, met with criticism from legal fraternities and had been challenged before various High Courts. The High Courts of Gujarat, Delhi and Calcutta stayed the notifications issued by the CBEC by finding that these “may unreasonably prejudice Senior Advocates”.
Subsequently, the Government granted a small relief to the Senior lawyers, by applying Reverse Charge Mechanism (RCM) on such services.
The Notification Nos. 32/2016, 33/2016 and 34/2016 dated 06.06.2016 issued by the Board in this regard clarified the following;
Firstly, legal services provided to a Business Entity (Turnover above 10 lakhs) are taxable under Reverse Charge Mechanism., i.e, the onus to remit the tax to the Government lies on such entities. Secondly, legal services provided to a Non-Business entity and a Business entity (below turnover of Rs. 10 lakhs) are exempted from service tax. [Notification Nos. 32/2016]. Thirdly, legal services other than representational services provided to an individual advocate/ Firm of Advocates are taxable under Reverse Charge Mechanism. In case of providing representational services to any business entity through any advocate or an advocate Firm, the liability to pay tax lies on such business entity under RCM. [Notification No. 32/2016].
However, the list of services under Reverse Charge approved by the GST council yesterday contains only the services provided by the individual advocate or Law Firm to a business entity.
In case of Senior Advocates, the services provided to a business entity having a turnover of above 20 lakhs will be subject to GST at a rate of 18%.
Though the services provided by the Lawyers and law Firm to big corporate are taxable, the same will continued to be assessed in the hands of such business entities by applying RCM.