Is GST Applicable to Legal Services? What Every Lawyer and Client Must Know

In this article, we break down the essentials of GST on legal services, clarify who pays what, and highlight the key exemptions every lawyer and client should know. Whether you’re a seasoned advocate, a law firm partner, or simply someone seeking legal help, this guide will help you navigate the GST maze with confidence.

What Are Legal Services Under GST?

First things first: what counts as “legal services” under GST? According to the GST Act and the government’s notification (No. 12/2017 – Central Tax (Rate)), legal services include:

• Representation before any court, tribunal, or authority
• Legal guidance, consultancy, or assistance in any legal matter
• Drafting of legal documents
• Arbitration and conciliation services

In short, almost everything a lawyer or law firm does for a client is considered a legal service under GST.

GST Rate on Legal Services

Here’s the straightforward answer: GST is charged at 18% on most legal services in India. This rate applies to the total fee charged by the advocate or law firm, covering appearances, document drafting, legal consultations, and more.

GST Rates and Codes for Legal Services

GST Registration Requirements for Lawyers

Not every advocate or law firm is required to register for GST. Here’s when registration becomes mandatory:

• Threshold Limit: If your total turnover from legal services exceeds Rs. 20 lakh in a financial year (Rs. 10 lakh in special category states), you must register for GST.
• Inter-State Services: If you provide legal services to clients in other states, GST registration is required regardless of turnover.
• Voluntary Registration: Even if your turnover is below the threshold, you can voluntarily register for GST. This allows you to claim input tax credit on GST paid for business expenses.

Who Pays GST on Legal Services? The Reverse Charge Mechanism

This is where things get interesting. For most services in India, the service provider (the lawyer or law firm) collects GST from the client and pays it to the government. But for legal services, GST often works differently due to the Reverse Charge Mechanism (RCM).

How Does RCM Work for Legal Services?

• If the client is a business registered under GST: The client (service recipient) must pay GST directly to the government, not the lawyer. The lawyer does not need to collect or deposit GST in this case.
• If the client is an individual or unregistered business: The lawyer or law firm is not required to collect GST if their turnover is below the threshold.

Key Point: If you’re a business availing legal services, you’re responsible for paying and reporting GST under RCM.

GST Exemptions for Legal Services

Not all legal services are taxed. Here are the major exemptions:

• Threshold Exemption: Advocates or law firms with turnover below Rs. 20 lakh (Rs. 10 lakh in special category states) are not required to register for GST.
• Services to Individuals: If the legal fee charged to an individual is less than Rs. 1,000 per day, it is exempt from GST.
• Services to Courts or Tribunals: Legal services provided to any court or tribunal are exempt.
• Services to Government: Legal services provided to the government, local authorities, or specified persons are exempt.
• Senior Advocate to Senior Advocate: Services provided by a senior advocate to another senior advocate are exempt.

Key Judicial Interpretation

A recent and significant judgment, Bar of Indian Lawyers Through Its President Jasbir Singh Malik vs D.K. Gandhi (2024), addressed the nature of the client-lawyer relationship. The court held that legal services constitute a contract of personal service, thereby segregating them from trade and business practices. This means that the practice of law is recognized as a personal, fiduciary relationship rather than a commercial transaction, further distinguishing it from other service sectors subject to GST in the usual manner.

No Service Tax or GST on Legal Services by Individual Lawyers: Orissa HC

GST on Legal Services: Common Scenarios Explained

1. Law Firm to Business Client

• Law firm provides services to a GST-registered company.
• GST is paid by the company under RCM.
• The law firm does not need to collect or deposit GST.

2. Individual Advocate to Individual Client

• Advocate charges an individual client.
• If the advocate’s turnover is below Rs. 20 lakh, no GST registration or collection is needed.

3. Law Firm to Government

• Law firm provides legal services to a government department.
• Services are exempt from GST.

4. Senior Advocate to Law Firm

• Senior advocate provides services to another advocate or law firm.
• Exempt from GST.

SAC Codes and GST Rates: A Quick Reference

What Should Lawyers and Clients Do?

For Lawyers and Law Firms:

• Track your annual turnover to know if GST registration is needed.
• Issue proper invoices and maintain records as per GST law.
• Understand when GST is to be paid by you and when by the client under RCM.

For Clients:

• If you’re a business, ensure you pay GST under RCM when availing legal services.
• Claim input tax credit for GST paid on legal services, if eligible.
• Always ask for a proper invoice from your lawyer or law firm.

As Per the Constitution of India: Legal Practice is Neither Trade nor Commerce

Constitutionally and technically, the practice of law cannot form part of a trade agreement, as it is governed under Entries 77 and 78 of the Union List in the Seventh Schedule of the Constitution of India. These entries deal specifically with the regulation of the legal profession and the administration of justice, distinctly separating them from entries related to trade and commerce. This constitutional position underscores that legal services are not to be treated as commercial activities in the traditional sense, raising critical questions about the imposition of GST on such services.

Frequently Asked Questions (FAQs)

Q1: What is the GST rate on legal consultancy fees in India?
A: The GST rate is 18% on most legal services.

Q2: Who pays GST on legal services—the advocate or the client?
A: For business clients, GST is paid by the client under the reverse charge mechanism.

Q3: Are there exemptions for small law firms?
A: Yes, law firms and advocates with turnover below Rs. 20 lakh (Rs. 10 lakh in special category states) are exempt from GST registration.

Q4: Are legal services to government departments taxed?
A: No, legal services to government, courts, or tribunals are exempt from GST.

Conclusion

GST on legal services may seem complex, but with the right information, both lawyers and clients can ensure compliance and avoid surprises. The key is understanding when GST applies, who is responsible for paying it, and what exemptions may benefit you. As the legal and tax landscape continues to evolve, staying informed is the best way to protect your interests—whether you’re providing legal advice or seeking it.

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