1/07/2017
PUNE: The cost
of litigation for business entities hiring services of lawyers or law
firms is bound to go up on account of application of Goods and Services
Tax (GST) on a reverse charge basis despite legal services being exempted from
it.
Senior lawyer Makarand Deo, who specializes in tax laws, told pune-news.com, "Business entities,
whether individual or partnership firms or a body corporate, will be charged
GST on the fees paid to individual lawyers or law firms. For instance, a
sale deed executed for business purpose will attract GST, but the same for an
individual purpose won't. Lawyers normally charge fees as per the amount of
litigation. The higher the amount, the higher will be the fees as well as the
GST payable by business entity hiring law service."
Deo said, "At the same time, the business entities paying
GST on a reverse charge basis will be entitled to a 100% input tax credit. They
can claim such credit in their tax return filed in the next month. As such,
they will have to bear the cost only for a month. Effectively, there won't be
any cost burden for them in the long run."
Govind Patwardhan, another expert in tax laws, said,
"Individual lawyers or services provided to an individual client will not
be affected considering that legal services have been exempted from GST." As
the Centre continued with issuing fresh notifications on the eve of the GST
launch, Patwardhan said, "Much also depends on what recommendations the
government has accepted. For now, I do not think the cost of litigation in
constitutional courts such as Supreme Court and high courts will increase for
individual litigants."
According to chartered accountant Dilip Satbhai, legal and
medical professions are the only two services which have much to cheer about
from the GST considering that they are exempted from it. "However, the
reverse charge on legal service hired by companies will take the cost of
litigation on a higher side. Firms offering services such as legal process
outsourcing (LPO) will fall under the 18% bracket of GST," said Satbhai.
Lawyer S K Jain said, "Section 22 of the GST Act provides
that an individual or firm with an annual aggregate turnover of Rs20 lakh and
above has to get enrolled with the competent authority and the tax will be
applicable accordingly." Senior law academician Mukund Sarda said,
"The LPOs into services such as consultancy and drafting will fall under
the GST ambit. The cost of justice will rise for corporate litigants."
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