1. Introduction
Legal services play an essential role in business operations—whether related to drafting agreements, litigation, arbitration, representation, or advisory. Under GST, legal services have a distinct tax treatment due to their coverage under the Reverse Charge Mechanism (RCM).
Taxpayers often face confusion regarding:
- Whether advocates/law firms must charge GST
- When RCM is applicable
- GST exemptions available
- Eligibility of Input Tax Credit (ITC)
- Documentation and compliance
- GST on arbitration and drafting services
This Handout explains the complete GST applicability on legal services in a simple and detailed manner.
2. Nature of Service under GST
Under GST, legal services are categorized as services as per Section 2(102) of the CGST Act.
Legal services include:
- Legal consultancy
- Representation before courts/tribunals
- Arbitration and conciliation
- Drafting of petitions, agreements, and contracts
- Legal documentation and advisory
These are treated as pure services, not goods. Most legal services fall under RCM, meaning GST is paid by the recipient (business entity), not the advocate.
3. HSN / SAC Codes for Legal Services
| Activity / Service | SAC Code | Remarks |
|---|---|---|
| Legal consultancy | 998213 | Main category under legal services |
| Arbitration / conciliation | 998215 | Covered as arbitration services |
| Litigation / court representation | 998216 | Representation services |
| Drafting & documentation | 998218 | Legal support services |
4. GST Rates Applicable on Legal Services
| Nature of Supply | GST Rate | Notes |
|---|---|---|
| Legal services provided by advocate/law firm to business entity | 18% | Paid under RCM by the recipient |
| Legal services to other advocates | Exempt | No GST |
| Legal services to non-business individuals | Exempt | No GST |
| Services by senior advocate | 18% | Also under RCM |
Relevant Notifications
- Notification No. 12/2017 – Exemptions
- Notification No. 13/2017 – RCM
- Notification No. 11/2017 – GST Rates
5. GST Exemptions for Legal Services
Legal services are exempt in the following cases:
- Services by an advocate to another advocate
- Services to non-business entities (e.g., individuals)
- Services to unregistered business entities whose turnover is below ₹40/20 lakh (₹20/10 lakh for specified states)
- Arbitration services to non-business individuals
- Legal services to small unregistered business entities
Example
If a lawyer advises a salaried employee, no GST is applicable.
6. Input Tax Credit (ITC) on Legal Services
ITC Allowed
Businesses can claim ITC on RCM-paid GST for:
- Legal consultancy
- Arbitration charges
- Litigation fees
- Drafting & documentation fees
ITC Not Allowed
ITC is restricted only when:
- Services are used for exempt supplies
- Services relate to personal consumption
Special Conditions
- RCM tax must be paid in cash (not through ITC).
- ITC can be claimed only after payment of RCM.
- If legal services relate to both taxable and exempt supplies, Rule 42 applies (proportionate reversal).
7. Reverse Charge Mechanism (RCM)
RCM is the core of GST on legal services.
| Supplier | Recipient | RCM Applicable? |
|---|---|---|
| Individual Advocate | Registered Business Entity | Yes |
| Senior Advocate | Registered Business Entity | Yes |
| Law Firm (Partnership/LLP) | Registered Business Entity | Yes |
| Advocate | Non-business Individual | No |
| Advocate | Other Advocate | No |
GST Rate under RCM: 18%
8. Place of Supply Rules for Legal Services
Domestic Transactions
- If the recipient is registered → Place of supply = location of the recipient
- If the recipient is unregistered → Place of supply = location of the supplier
Export of Legal Services
Legal services qualify as export if:
- Recipient is located outside India
- Payment received in foreign currency
- Supplier is located in India
- Place of supply is outside India
Exports are zero-rated.
9. GST Registration for Advocates & Law Firms
Advocates / Law Firms
- Registration not mandatory when providing services covered under RCM.
- Required only if they provide services on forward charge, which is rare.
Business Recipients
Must register if:
- Liable to pay RCM
- Turnover exceeds threshold
- Required under Section 24
10. Compliance Requirements
For Business Entities
- Pay GST under RCM in GSTR-3B {Table 3.1(d)}.
- Claim ITC in GSTR-3B {Table 4A(3)}.
- Maintain legal invoices from advocates.
- Keep proof of RCM payment.
For Advocates
- Not required to file GST returns if providing only RCM-based services.
- If registered, must file monthly/quarterly returns.
11. Practical Issues & Common Mistakes
Common errors include:
- Not paying RCM on legal invoices
- Wrong SAC classification
- Not claiming ITC after RCM payment
- Misinterpreting exports of legal services
- Advocates issuing GST invoices unnecessarily
12. Case Studies & Examples
Example 1: RCM Liability
Invoice value: ₹50,000
GST @ 18% = ₹9,000
Company pays ₹9,000 under RCM and claims ITC of ₹9,000.
Example 2: Exempt Service
Legal advice to a salaried person → GST exempt.
Example 3: Export of Service
An Indian advocate drafts a contract for a US client.
Payment in USD → Zero-rated export.
Example 4: Arbitration Service
Law firm provides arbitration services to a registered company → RCM applies.
13. Quick Summary Table
| Topic | Summary |
|---|---|
| SAC Code | 998213, 998215, 998216 |
| GST Rate | 18% |
| Exemptions | For non-business individuals & small unregistered entities |
| ITC | Allowed to recipient |
| RCM | Applicable |
| Compliance | GSTR-3B, RCM payment, ITC claim |
14. Conclusion
GST on legal services primarily uses the Reverse Charge Mechanism, shifting compliance burden from advocates to business recipients. To avoid disputes and tax mismatches, businesses must ensure correct RCM payment, maintain documentation, and timely claim ITC.
Legal services often involve complex interpretations; therefore, professional guidance is advisable in doubtful cases.
