• This short article asks why Advocates/Legal Firms do not pay GST. Currently they are charged under the Reverse Charge System. If subject to GST, they might be able ITC and allow authorities to match income declared in GST with Income-tax returns.

After GST 2 was launched by the Government of India, the CBIC Chairman Mr Sanjay Agarwal was quoted in a September 8, Hindustan Times report as saying, “Agarwal cautioned against what he called ‘scare tactics’ adding Central GST authorities adopting a persuasion based approach where discrepancies are detected between GST returns and Income-tax returns.”

Impressed with Mr Agarwal’s statement, I spoke to a practicing Chartered Accountant friend who said matching of income as declared in GST (Goods and Services Tax) and Income-tax returns is nothing new, been done by CBIC since 2017. He went on to add that before filing Income-tax returns they first match the income declared in GST returns with that of Tax returns.

The question that has troubled me for long is why are Law Firms not subject to GST? If Chartered Accountants are asked to pay GST on tax advisory services rendered why not advocates?

“Under the Goods and Services Tax (GST) framework, legal services provided by advocates and law firms are subject to the Reverse Charge Mechanism (RCM). This means that the recipient of the service, if a business entity, is liable to pay GST instead of the supplier of the service. Proper classification of legal services and awareness of exemption provisions are crucial for businesses and legal professionals to ensure compliance with GST laws. 3

Current provisions complicate matters for the service recipient and adversely affect ease of doing business (read why Here). Further, for law firms, the CBIC cannot match the income declared in their income-tax with GST returns as is being done for other assesses.

Monika Yadav wrote in Business Standard (Sept 18, 25), “While GST allows refunds under an inverted duty structure, this relief is limited to goods, Not Services.  Industries like construction, pharma etc. often pay higher GST on services in the form of legal fees, consultancy etc. but cannot claim a refund even their output is taxed at a lower rate.” Now, for GST 3. Please see para

If GST is charged directly by advocates, they can avail of Input Tax Credit (ITC) reducing their overall costs.

GST was introduced by a lawyer the respected and late Shri Arun J but today!!

Should Advocates/Law Firms be subject to Differnetial Treatment? Equality before Law!

This matter requires discussion at the GST State Council level and with law firms.

Given the fees that law firms earn on an annualised basis, there is scope for revenue leakage. This is not to imply that law firms are not disclosing their true income.

One does not need GST 3 for this government to effect. This BJP led government has taken many tough decisions. Will it bite the bullet on this one?

Additional revenue, if any, can be used to serve the poor and increased infrastructure spending all for the benefit of 140 crore Bharatiyas.

Disclosure – Just because the author is a Chartered Accountant, he has no malice against the legal profession. Maximization revenue and serving the poor is aim. Note that although the words lawyer and advocate are used interchangeably what is meant is all those professionals providing legal services. 

Also read

1. How GST revenue is shared in India

2. GST Compensating for growth slowdown

3. Reverse Charge Mechanism on Legal Services – How does it work

4. Legal Services GST Taxability – Good read