Latest News: Services provided by prosecutors and law firms will continue to be taxed under the system where the onus of paying the appropriate tax amount to the government will lie to the clients getting the service, the government explained on Saturday. This system, called the “reverse charge mechanism”, will continue in the goods and services tax (GST) era as well, the clarification issued by the Central Board of Excise and Customs (CBEC) said.
An 18% GST rate with full input tax credit is applicable on legal services availed by businesses with a turnover above Rs20 lakh, while such services taken by individuals and smaller businesses are exempt from the indirect tax. The turnover threshold is Rs10 lakh in the case of northeastern states.
The clarification said that taxable legal services include advice, consultancy or assistance and includes representational services before any court, tribunal or authority. “Legal services, which includes representational services, provided by advocates are under reverse charge,” said the clarification.
“It may be mentioned that there is no change made in taxation of legal services in the GST era,” said the CBEC explanation. It comes in the wake of the Delhi high court on Thursday seeking a clarification on whether all services provided by legal practitioners and firms will be governed by the reverse charge mechanism under the GST regime.
The onus of payment in the other, more common way of paying indirect taxes, called the “forward charge” system, is with the service provider, who collects the tax amount from the service recipient. The court’s order was in response to a petition filed by one J.K.Mittal, challenging the constitutional validity of notifications issued by the central and Delhi governments.
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