Does GST apply to law firms below 20 lakhs
“Does GST Apply to Law Firms Below 20 Lakhs in India?”
By Rajendra Law Office LLP – Appellate and Tax Litigation Experts in Chennai
GST and Small Law Firms – Where Do the Rules Stand?
GST changed India’s tax regime, but legal professionals remain confused—especially those operating below ₹20 lakh turnover. Law firms and LLPs earning under this limit often assume they are entirely exempt from GST. However, the reality involves nuances that go beyond a simple number.
GST applies differently depending on your service recipient, billing structure, and even how you are classified—as an individual, firm, or LLP. The threshold of ₹20 lakh (or ₹10 lakh in special category states) determines whether registration is required, not necessarily whether GST is applicable. This confusion arises because of the Reverse Charge Mechanism (RCM).
Consequently, law firms under the threshold may not be required to register, but their services could still attract GST indirectly. Moreover, firms offering non-legal or export services face unique compliance obligations, even with modest earnings. Therefore, this article explores how GST interacts with small law firms and what strategic steps to take.
Understanding the ₹20 Lakh GST Threshold and Its Legal Impact
The GST Act defines ₹20 lakh as the aggregate turnover limit beyond which registration becomes mandatory. This threshold reduces to ₹10 lakh for Northeastern and hill states. For law firms, the turnover includes fees from services provided to clients across categories.
However, this threshold only governs registration requirements, not the applicability of tax itself. That’s an important distinction. For example, legal services rendered to a company under GST attract 18% tax—even if the law firm’s income is ₹5 lakh. In this case, the client pays the tax via RCM.
Thus, small law firms are exempt from registration, not from the GST liability arising through the client. This tax mechanism ensures that GST applies to most legal services, regardless of firm size. Moreover, law firms serving foreign clients or offering consultancy services outside legal work must register—threshold or not.
Therefore, lawyers must avoid mistaking the threshold as blanket immunity. Instead, assess clients, services, and jurisdiction to stay compliant under the law.
Reverse Charge Mechanism (RCM): Why GST Still Applies Without Registration
The Reverse Charge Mechanism (RCM) is central to understanding GST’s application to small law firms. Under RCM, the burden of paying GST shifts from the service provider to the recipient.
Legal services rendered by law firms or advocates to:
Business entities registered under GST
LLPs, partnerships, or corporates
are taxable under RCM, where the client remits GST to the government.
This arrangement removes the need for small law firms to register solely for tax collection. However, RCM does not waive the tax liability itself—it merely shifts responsibility. Your invoice should clearly state:
“Tax payable by recipient under reverse charge.”
Moreover, RCM applies even when the law firm’s annual turnover is under ₹20 lakh. Consequently, GST is effectively applicable in most commercial engagements, despite registration exemptions.
Therefore, the practical impact of RCM is profound. Law firms below threshold must still issue GST-compliant invoices, track client GSTINs, and keep digital records.
Common Scenarios Where Small Law Firms Must Still Follow GST Rules
Even without mandatory registration, many small law firms encounter situations that demand GST compliance. Failing to identify these scenarios could lead to future litigation or tax audits.
📌 Key Situations Triggering GST Responsibility:
Serving Registered Business Clients
Serving Foreign Clients
Offering Mixed Services
Voluntary Registration for ITC
Receiving Government Grants
Thus, size alone doesn’t guarantee GST freedom. The nature of services, recipients, and business ambitions all factor into your compliance scope. Therefore, periodic reviews of engagements are essential to avoid crossing legal lines unknowingly.
Voluntary Registration: Should Small Firms Opt-In Even If They Are Exempt?
Voluntary GST registration offers several advantages—but comes with responsibilities. For law firms under ₹20 lakh, it can be a strategic move or a burden depending on goals.
✅ Why Some Small Law Firms Voluntarily Register:
To claim ITC on office expenses like rent, software, or laptops
To issue GST-compliant invoices when clients insist
To serve foreign clients legally and claim export refunds
To build a corporate-friendly brand ready for institutional work
To expand scope into other services like arbitration, mediation, or legal tech
⚠️ Downsides of Voluntary Registration:
Mandatory filing of GSTR-1, GSTR-3B, and GSTR-9 (if applicable)
Audit risk and increased recordkeeping obligations
Penalties for non-filing—even with zero turnover
Limited ITC benefit if expenses are minimal
Therefore, voluntary registration must align with your firm’s future plans. If growth, exports, or ITC benefits outweigh compliance costs, it makes sense. But without planning, it could become a regulatory trap.
Export of Services by Small Law Firms – What the Law Requires
Many small law firms today serve clients outside India, especially in IP law, contract vetting, or litigation strategy. Such services qualify as “export of services” under GST.
🚨 Key Requirements for Export Legality:
The recipient must be located outside India
Payment must be received in foreign currency
The services must not relate to a place within India
The provider must be registered under GST
Even if your turnover is below ₹20 lakh, GST registration is mandatory for exports. This is because exports are treated as zero-rated supplies, allowing refund of Input Tax Credit.
However, if you remain unregistered, you lose the ability to claim ITC on business expenses. Moreover, invoices raised without a GSTIN may not be valid under tax scrutiny.
Therefore, for any firm with international clients, GST registration isn’t a choice—it’s a compliance necessity.
Risks of Misinterpreting GST Rules for Low-Revenue Legal Firms
Small firms often ignore GST out of comfort or assumption. However, that opens the door to compliance issues, penalties, or loss of reputation.
❌ Common Mistakes by Small Law Firms:
Not mentioning RCM in invoices
Serving export clients without GST registration
Claiming ITC without valid registration
Mixing legal and non-legal services but staying unregistered
Assuming threshold gives total exemption from all GST rules
Penalties include ₹10,000 or 100% of tax due, whichever is higher. Moreover, GST officers now cross-verify lawyer earnings with banking and IT data. Consequently, any mismatch can trigger a show-cause notice.
Therefore, understanding exemptions isn’t just good practice—it protects your firm from regulatory action and legal damage.
CBIC Clarifications and Court Cases Supporting Exemptions
Over the years, multiple GST circulars and High Court judgments have clarified GST applicability for small law firms.
📄 CBIC FAQs on Legal Services (2017–2023):
Individual advocates and law firms are exempt from registration if they provide only RCM services
GST registration is mandatory for exports or forward-charge services
Law firms can voluntarily register and claim ITC
⚖️ Judicial Precedents:
Orissa HC (2020): Quashed GST notices issued to lawyers under RCM
Delhi HC (2022): Held that small legal exports require GSTIN to be valid zero-rated supplies
Madras HC (2023): Affirmed that exemption under RCM does not mean exemption from other compliance obligations
These rulings provide solid legal backing to lawyers operating below ₹20 lakh. However, courts also emphasize that ignorance of classification or wrong invoicing can attract legal consequences.
Step-by-Step Compliance Advice for Small Law Firms
If your law firm operates below ₹20 lakh, follow these practical steps to stay compliant and future-ready:
Identify your clients
Classify your services
Determine if RCM applies
Consider export scenarios
Keep digital and physical records
Consult a GST expert annually
By following these steps, even a small firm can operate with zero stress and maximum legal protection.
Conclusion: GST Exemption Isn’t Absolute – Navigate It Strategically
Law firms earning less than ₹20 lakh per year are exempt from mandatory registration, but not from all GST rules. RCM ensures that tax is still levied on most services provided to business clients.
Firms offering exports, mixed services, or looking to claim Input Tax Credit must register regardless of turnover. Misunderstanding this boundary can lead to penalties, refund rejections, or client disputes.
At Rajendra Law Office LLP, we help legal professionals:
Determine whether registration is legally required
Structure invoices for RCM compliance
Handle export GST filings and refund claims
Avoid risks through proactive GST advisory
📞 Need help with your law firm’s GST compliance—even below ₹20 lakh turnover?
Connect with Rajendra Law Office LLP today for a confidential tax consultation.
