Many legal outfits will not come within the purview of the service tax proposed to be imposed on legal consultancy services as they operate as sole proprietorships, say experts.
As the service tax will apply on advice provided by a business entity to another business entity, sole proprietorships will not come within the purview of the proposed service tax, said Diljeet Titus, senior partner of law firm Titus and Co.
Expressing similar opinion, Atul Gupta, member of the ICAI Executive Committee (northern region) said, as sole proprietorships are not business entities they will not be required to pay service tax. This is a discrepancy and needs to be corrected.
Many of the legal outfits, which provide consultancy services to corporates that include drafting merger and acquisition agreements, preparing MoUs, rendering advice etc, operate as sole proprietorships.
Only law firms, which are business entities under the Indian Partnership Act or the Limited Liability Partnership Act, will be have to pay service tax on fees charged from corporates, said Hemant Batra, lead partner Kaden Boriss.
While proposing to extend the ambit of service tax to cover legal advice and consultancy, finance minister Pranab Mukherjee in his budget speech clarified, This (service tax) will not be applicable in case the service provider or the service receiver is an individual.