Law services to cost more

Thinking of hiring a lawyer? Go ahead, but it will soon cost you more if you are doing so on behalf of a firm; lawyers representing individuals have been exempted.

The Budget for 2011-12 has brought lawyers representing business entities under the service tax net. The ‘service' of ‘arbitration' provided by an arbitration tribunal to any business entity will also have to bear the 10 per cent service tax. The legal fraternity says this should be seen as a preparatory step to the proposed GST regime, which envisages that all services will be taxable.

“This levy will be passed on to the client. The client, on the other hand, can always avail Cenvat credit on the same,” legal practitioners say.

Partner in Amarchand & Mangaldas, Mr Aseem Chawla, said “the intention seems to be to broad-base the levy and scope of service tax, as the tax has been one of the means of garnering large revenues for the Government with the buoyancy in the economy.”

Readying for GST

“It is an obvious transition, as we are readying for a GST regime, which envisages that all services will be taxable,” says Mr Manoj Arora, corporate lawyer.

Mr Diljeet Titus, Managing Partner, Titus & Co, said, “It is time for lawyers to accept it. As a result of this, law services will become expensive and the 10 per cent service tax will have to be absorbed by the clients.”

A compilation of the legal expenses incurred by listed Indian companies last fiscal shows that large companies such as Reliance Industries, Suzlon Energy, Punj Lloyd and Infosys shelled out the largest sums in 2009-10. While Reliance Industries expended Rs 500-700 crore in each of the past four years in the form of legal expenses, Infosys shelled out Rs 200-280 crore. Companies such as Suzlon Energy and Punj Lloyd, on the other hand, have seen their legal expenses shoot up only in the last two years.

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