GST on Legal Services under RCM India’s indirect tax structure has been overhauled by Goods and Services Tax (GST) that eliminated multiple taxes and established a single umbrella tax. It covers a large number of goods and services, including legal services. However, the RCM provides for special provisions stating the GST on legal services. This post contains an analysis of how GST is applied to legal services within RCM.
What is RCM? The Reverse Charge Mechanism (RCM) under the Goods and Services Tax, GST system, in India, is a provision and part of the general GST system. In every general GST scenario, the supplier collects GST from the recipient and deposits it with the government. However, in the case of RCM, the recipient will directly pay GST applicable on the goods or services directly to the government, instead of paying it to the supplier. Essentially, RCM typically applies to certain specified goods and services or where the supplies are unregistered suppliers.
Comprehending Legal Services in the Context of GST The term “legal services” includes different activities performed by lawyers such as advice giving, consultancy work, and representation before courts. These fall under SAC Code 9982 which comprises legal and accounting services with the specific HSN code for legal being 998213. Service Description SAC Code HSN Code GST Rate Legal Consultancy and Advisory Services 9982 998213 18% Representation in Courts by Advocates 9982 998213 18% Drafting of Legal Documents 9982 998213 18%
Specific HSN Codes for Legal Services
GST on Legal Practitioners The legal practitioners who are subjected to GST include individual solicitors, senior advocates and legal firms. Although these lawyers provide services that are liable to GST, most of the time they aren’t directly responsible for remitting the taxes. Instead, in many cases, when it comes to purchasing legal services one needs to pay a GST under RCM.
Some exemptions exist pertaining to legal fees. For example, if non-business organizations receive legal advice or other assistance in relation to their activities that have no commercial element then these types of services may not require tax payment. However, in case the turnover of business entities exceeds certain threshold limits – they should apply GST on RCM.
Legal Basis for RCM under GST Law The statutory basis for Reverse Charge Mechanism (RCM) is provided by Sections 9(3) & 9(4) of CGST Act, 2017 . In this regard, these sections empower the government to prescribe certain supplies where such provisions would be applicable. The provision covers such things as legal services according to Notification No:13/2017-Central Tax (Rate), dated June 28th 2017. Accordingly, this notification obligates any corporate enterprise receiving professional representation from an attorney-at-law to remit his/her service tax liability through reverse Charge Mechanism (RCM). Situations Where RCM can be Applied RCM application is done to various goods and services including that of legal services. Under RCM, when a registered advocate or a legal firm provides any service to business entity, the liability to pay GST would be on the recipient.
GST on Legal Services under RCM Notification and Applicability The applicability of GST on legal services under RCM arises from Notification No 13/2017 whereby any legal service provided by an advocate or a firm of advocates to a business entity attracts GST under RCM. This provision became effective as of July 1, 2017, and it applies to all registered business entities.
Persons Liable to Pay GST under RCM for Legal Services Liability for payment of GST in relation to the provision of legal services does not fall upon the service provider but rather onto the person receiving such assistance. These include: Service Provider Service Recipient GST Applicability Who Pays GST? RCM Applicable? Individual Advocate Business Entity (Registered) 18% (CGST + SGST or IGST) Business Entity (Recipient) Yes Law Firm Business Entity (Registered) 18% (CGST + SGST or IGST) Business Entity (Recipient) Yes Individual Advocate Non-Business Entity/ Individual Consumer Exempt Not Applicable No Advocate (Inter-State Service) Business Entity (Registered) 18% IGST Business Entity (Recipient) Yes Advocate Government Body/ PSU 18% (CGST + SGST or IGST) Government Body/ PSU Yes
GST on Legal Services The standard GST rate of 18% applies to legal services under RCM. In this regard, the tax structure consists of either Central GST (CGST) and State GST (SGST) for intra-state transactions or Integrated GST (IGST) for inter-state transactions. The service recipient will be responsible for accounting for and remitting the appropriate amount of GST based on the place of supply. Registration and Compliance Requirements In cases where legal practitioners provide services that are under RCM, they are exempted from registering for GST. This is because, when such a person receives services, he/she becomes liable to meet their payment obligations concerning goods and services tax. However, even if a legal practitioner provides non-business entities with services or partakes in other taxable activities not described in RCM, they may yet have to register themselves under GST.
The RCM Recipient’s Duties Several obligations of compliance are expected from the recipient of legal services under RCM:
1. GST Registration : For discharging the tax liability under RCM, a recipient must be registered under GST.
2. Time of Supply: Services under RCM are taxable at the time of payment or receipt, whichever is earlier.
3. Filing of GSTR-3B: The monthly GSTR-3B return submitted by the recipient must have a tax liability and timely payment of GST.
4. Claiming Input Tax Credit (ITC): A receiver can claim ITC after paying off GST subject to eligibility.
Input Tax Credit (ITC) on Legal Services under RCM For example, a person who pays GST for legal services can claim it as an input tax credit (ITC), provided that such services are used in his/her business and other conditions laid down in Section 16 of the CGST Act are complied with. However, blocked credits under Section 17(5) cannot be claimed including those relating to personal expenses which do not qualify.
To claim ITC, necessary proofs such as invoices and payment vouchers should be kept by the recipient showing GST paid on an RCM basis. The claims for ITC must be made within specified deadlines prescribed in the applicable GST law, usually during one financial year only.
Case Studies/Examples Example 1: Intra-State Legal Service Suppose a legal service is provided by a solicitor in the same state where the business is located. The business entity as a receiver must pay CGST and SGST on the advocate's fee to discharge its GST liability under RCM.
Example 2: Inter-State Legal Service In cases where an advocate from one state provides legal services to a business entity from another state, IGST should be paid by business entities for lawyers’ fees thus discharging GST liability under RCM.
Example 3: Legal Services to Government Entities When there is rendering of any legal services to a government agency, it is always due to this fact that GST has to be paid under the Reverse Charge Mechanism (RCM). However, if registered advocates or law firms provide legal services to such government agencies then they should register for GST law also.
Conclusion In conclusion, taxation of legal services especially through the reverse charge mechanism adds another level of complexity both to providers and receivers. Whenever their work falls within the RCM ambit, legal practitioners are mostly exempted from GST registration and compliance making the burden shifted onto recipients. Companies must ensure they comply with all requirements related to registration for tax payment purposes as well as reporting when sourcing for legal services. To remain compliant therefore you must keep abreast of changes in Gandhian philosophy which still keeps evolving.
FAQs 1. Explain what GST entails on legal services. GST on legal services means Goods and Services Tax which is imposed on the services rendered by lawyers and law firms. Legal services attract an 18% tax under GST, which may be payable in certain cases under the Reverse Charge Mechanism (RCM).
2. How does work regarding RCM on advocate fees under GST? Under the Reverse Charge Mechanism (RCM) of advocate fees, the recipient of the legal service is liable to pay GST instead of the service provider (advocate). What this implies is that usually, a business entity or governmental body becomes liable to pay GST at applicable rates.
3. What is GST on lawyer fees compliance? The rate for lawyer fee GST is 18%. This includes Central GST (CGST) of 9% plus State GST (SGST) of 9% for intra-state services or Integrated GST (IGST) in case of inter-state supply.
4. How should the HSN code be described as far as legal services are concerned? For purposes of classification and taxation under GST, the HSN code for legal services is 998213. It identifies those services relating to rendering advice, representation before courts and drafting documents which are taxable under the CGST Act.
5. Give the SAC code for legal services done under GST. The SAC code for legal services is 9982, which includes various services in the field of law and accounting like consultation, advice and representation in legal matters.
People Also Ask 1. Who is required to pay GST on legal services? When legal services are provided to a registered business entity, the recipient of the service (the business) must pay GST under the Reverse Charge Mechanism (RCM), not the lawyer or law firm.
2. Is GST registration mandatory for advocates? No, advocates and law firms providing services covered under RCM are exempt from GST registration if they supply only such services. The tax liability shifts to the recipient.
3. What is the GST rate for legal services? Legal services attract an 18% GST rate – charged as CGST + SGST for intra-state transactions or IGST for inter-state transactions.
4. Can Input Tax Credit (ITC) be claimed on legal fees paid under RCM? Yes, ITC can be claimed if the legal services are used for business purposes and all conditions under Section 16 of the CGST Act are met, along with proper documentation.
5. Are legal services provided to individuals also covered under RCM? No, legal services provided to individuals for personal purposes are not taxable under RCM. RCM applies only to services provided to registered business entities or government departments.
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