#GST on Legal and Regulatory Services

#GST on Legal and Regulatory Services

Sumit Agrawal

The introduction of Goods and Services Tax (GST) is one of the biggest tax reforms in India. A “Dual GST” model has been adopted under the Constitution of India, whereby Centre and States will simultaneously levy GST on every supply of goods or services or both which takes place within a State or a Union Territory.

Therefore, given the federal structure of Indian democracy under the Constitution, there are three enactments pertaining to GST:

  • Central tax (CGST) (levied & collected under the authority of Central Goods and Services Tax Act, 2017)
  • State tax (SGST) (levied & collected under the authority of State Goods and Services Tax Act, 2017 passed by respective States. At least 20 states have already passed the State Goods and Services Tax (SGST) Act in their respective State Assemblies, while some have taken the Ordinance route.)
  • Integrated Goods and Service Tax (IGST) (levied by the Central Government on all inter-State transactions of taxable goods or services under the authority of Integrated Goods and Services Tax Act, 2017)

Under Section 9(3) of Central Goods and Services Tax Act, 2017 the Government, through a gazette notification, specifies categories of supply of goods or services or both, on which tax shall be paid on reverse charge basis by the recipient of such goods or services or both.

All the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. This is done on the recommendations of the Goods and Services Tax Council established under Article 279A of the Constitution.

With effect from July 1, the whole of central tax is payable under the reverse charge mechanism notified by the Government of India through Gazette Notification No. 13/2017 – Central Tax (Rate) on 28th June, 2017 through G.S.R. 692(E) and is required to be discharged by the service recipient.

Further, through a notification issued on June 28, G.S.R. 691(E), intra-state supply of services of a partnership firm of advocates or an individual as an advocate other than a Senior Advocate, by way of legal services to the following has been exempted:

  • an advocate or partnership firm of advocates providing legal services;
  • any person other than a business entity; or
  • a business entity with an aggregate turnover up to twenty lakh rupees (ten lakh rupees in the case of special category states) in the preceding financial year.

Similarly, services provided by a Senior Advocate by way of legal services to-

  • any person other than a business entity; or
  • a business entity with an aggregate turnover up to twenty lakh rupees (ten lakh rupees in the case of special category states) in the preceding financial year are exempted.

Similarly, under Integrated Goods And Services Tax Act, 2017, the government has notified a category of services wherein the recipient of such services will be subject to levying of the whole of integrated tax on reverse charge basis by the recipient of the categorized services with effect from July 1.

Such categorized services include services provided by an individual advocate including a Senior Advocate or firm of advocates to a business entity located in the taxable territory.

Reverse charge means that the service receiver will pay the service tax instead of the service provider. Normally, an advocate, a Senior Advocate or a law firm, being a service provider, would have to collect the Service Tax and pay the same to the tax department. However, because of the applicability of reverse charge mechanism under the above notifications, the client or service recipient has to do that.

Interestingly, under the above notifications, services provided by regulators such as Securities and Exchange Board of India (SEBI), Reserve Bank of India (RBI), Insurance Regulatory Development Authority of India (IRDAI), Pension Fund Regulatory and Development Authority of India (PFRDA) have also been completely exempted from CGST and IGST.

Author is Partner, Suvan Law Advisors and former Assistant Legal

Advisor, SEBI.

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