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Service tax on retainership fees

Anshuman (Article Assistant) (87 Points)

12 March 2015

Dear All,

Is service tax charged on retainership fees charged by advocate for providing services.

Whether tds on the same needs to be deducted or not ??

thanks in advance

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15 Replies

sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 12 March 2015

TDS if the threshold limit exceeds Rs30000/=

Service Tax 100% by receiver of service under Reverse charge Mechanism Advocates are exempted from service Tax

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Saurabh Maheshwari (B.com,ACA) (5923 Points)
Replied 12 March 2015

As per Mega Exemption Notification No. 25/2012 dated 20.06.2012:

an individual as an advocate or a partnership firm of advocates by way of legal services to,-

(i) an advocate or partnership firm of advocates providing legal services ;

(ii) any person other than a business entity; or

(iii) a business entity with a turnover up to rupees ten lakh in the preceding financial year;

However, if services provided by advocate to a business entity with turnover exceeding Rs. 10 lacs in the preceding FY then liability to pay whole of tax is of business entity receiving such service under Notification No. 30/2012 dated 20.06.2012.

budha bhargav (Student) (52 Points)
Replied 12 March 2015

Service tax should not be charged by the service provider i.e advocate, since the provisions of RCM are applicable. Tds provisions of section 194j are applicable.Service tax should be paid by the service receiver and the same can be claimed as input credit.

Ankur (Professional) (95 Points)
Replied 02 February 2016

service tax on retainership basis could not be charged since retainership indicates as good as employer-employee relationship and hence not chargeable although he is an advocate

Ravi Kumar Somani (Indirect Taxes Specialization) (3893 Points)
Replied 02 February 2016

Disagree with Mr. Ankur, Retainership fee is not in the nature of employer - employee relationship. It shall be liable for service tax under reverse charge in the hands of the service receiver, assuming that the services provided are in the nature of legal service.

Regarsds,

Ravi Kumar Somani

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Ankur (Professional) (95 Points)
Replied 02 February 2016

dear ravi somani,

please clarify if an advocate charges separately for presenting our case apart from retainership fee, whether your opinion will remain same?

Ankur (Professional) (95 Points)
Replied 02 February 2016

it is paid somewhat to retain the advocate with the business entity so that he shall be bound to provide services as and when required however he shall be charging for that. The amount paid as retainership as a result of contract between advocate and business entity so that entity could get uniterrupted services. So in my opinion as defination of legal services under service tax act does not cover retainership fee and hence exempted.

Ravi Kumar Somani (Indirect Taxes Specialization) (3893 Points)
Replied 02 February 2016

Dear Ankur,

You need to be careful before giving any advice on a professional forum. Without seeing the retainership agreement, how you can conclude that there exists an employer/ employee relationship. Do you mean that an advocate when kept on a retainer basis becomes an employee of the company. It is a common industry practice of taking legal services of advocates on retainer basis. If what you say is to be accepted then it becomes a safe tool for tax evasion.

The matter of the fact remains that "any legal service" taken from advocates attracts service tax under reverse charge except for the specific expemption given under clause (6) of notification no.25/2012.

No where in the service tax law or any rules or notifications it is mentioned that the retainership agreement is in the nature of an employment contract thereby creating an employer/ employee relationship.

Hope i answer your query

Regards,

Ravi Kumar Somani

Ankur (Professional) (95 Points)
Replied 04 February 2016

dear mr ravi

I understand that service tax includes any legal services whereas what I wants to clarify that if an advocate gives bill of Retainership fee , then this indicates professional fees not the legal fee since he suppose to charge separately for providing legal services. "Retainership fee" could be proved as Professional fee if advocates maintains some contract agreement with the party.

I would welcome your any strong objection since I consider this case as somewhat subjective and needs to be justified if the service tax department objects it.

swetha (ca-articleship) (37 Points)
Replied 27 April 2016

If retainer ship is for other than legal services..then what is the scenario...is it the same...

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DEEPAK (OWNER) (23 Points)
Replied 12 October 2016

What about TDS Deduction. If he is an employees then the TDS should be like on salary, otherwise as a professional.

Harendra Kumar (Tax Advisor ) (1326 Points)
Replied 12 October 2016

Such service under RCM and TDS deducted @ 10% as professional. Further service provider no liabilty have to pay service tax on such service provided by him. All liabilty have to pay only who is received the service.

Further, Entire services is taxable in India but some circumstances is applecable.

Harendra Kumar (Tax Advisor ) (1326 Points)
Replied 13 October 2016

Dear Sir,

Firstly, servicve provided by the an Advocate by any other person is under RCM and no liabilty have to pay tax by the service provider. Further the entire duty liabilty have to pay service receiver only and TDS deducted by the receiver @ 10% as professional.

DEEPAK (OWNER) (23 Points)
Replied 20 February 2017

Retainership to a lawyer is always taxable in the hand of service reciever. It is clear that the services of a lawyer will be required in the field of any law be it Excise, VAT or ITAx or Criminal or Civil Law. When we pay a lawyer then it is with expectancy that he will advise or help us in the field of law. Retainership fee bound a lawyer to help us in the case of any need and it is like an advance payment for any future action, which may happen or not like an insurance policy. So it is taxable.