Understanding GST: Rates, Registration, and Calculation for Professional Services
This article clarifies the impact of GST on professional services in India, detailing its applicability, current tax rates, and registration requirements. It provides guidance on necessary documentation and the straightforward process for calculating GST. The content emphasizes compliance with tax laws for professionals such as chartered accountants, lawyers, and consultants.
The implementation of the Goods and Services Tax (GST) has significantly altered how professional services are taxed across India. Professionals such as chartered accountants, company secretaries, lawyers, consultants, architects, engineers, and management advisors must comprehend the implications of GST on their invoicing practices. This guide explores key aspects of GST for professional services, covering its applicability, current tax rates, registration requirements, essential documentation, and precise calculation methods under the prevailing regulations.
GST Applicability for Professional Services
Under the GST framework, professional services are categorized as "taxable services." Consequently, professionals are required to register for GST and levy tax on their services once their aggregate turnover surpasses a specific threshold. In most Indian states, this limit is ₹20 lakh, while certain special category states have a lower threshold of ₹10 lakh. This aggregate turnover is determined by combining all taxable and exempt supplies made across India under a single Permanent Account Number (PAN), rather than assessing each state individually.
New GST Registration Thresholds by State/UT
| States/ UTs | For Goods | For Services |
|---|---|---|
| Puducherry, Meghalaya, Mizoram, Tripura, Manipur, Sikkim, Nagaland, Arunachal Pradesh and Uttarakhand | 20 lacs | 10 lacs |
| Jammu & Kashmir, Ladakh and Assam | 40 lacs | 10 lacs |
| Telangana | 20 lacs | 20 lacs |
| Kerala, Chhattisgarh, Jharkhand, Delhi, Bihar, Maharashtra, Andhra Pradesh, Gujarat, Haryana, Goa, Punjab,Uttar Pradesh, Himachal Pradesh, Karnataka, Madhya Pradesh, Odisha, Rajasthan, Tamil Nadu, West Bengal, Lakshadweep, Dadra and Nagar Haveli and Daman and Diu, Andaman and Nicobar Islands and Chandigarh | 40 lacs | 20 lacs |
In some instances, GST registration becomes mandatory even if the turnover remains below these specified limits. This applies to professionals who provide services across different states, offer online services, operate as a casual taxable person, function as a non-resident taxable person, or are subject to the reverse charge mechanism. For example, a photographer based in Delhi who undertakes a photoshoot in Mumbai (an interstate supply) and delivers online editing services to international clients (Online Information and Database Access or Retrieval - OIDAR services), while also employing an unregistered assistant for a project, would be liable under reverse charge. Despite potentially low earnings, these activities necessitate GST registration.
Professionals also have the option to voluntarily register for GST, irrespective of whether they meet the compulsory turnover requirements. Voluntary registration can enhance operational efficiency and enable them to claim Input Tax Credit (ITC) on their business purchases. Conversely, certain services, such as healthcare delivered by recognized clinical establishments and educational services from approved institutions, are entirely exempt from GST, meaning no tax is levied on them.
Applicable GST Rates for Professional Services
Professional services generally fall under an 18% GST rate. For supplies made within the same state (intra-state), this rate is bifurcated into 9% Central Goods and Services Tax (CGST) and 9% State Goods and Services Tax (SGST). However, for services provided across different states (interstate supplies), a unified 18% Integrated Goods and Services Tax (IGST) is applied.
Professional Services with 18% GST Rate
| Type of Service | GST Rate (%) |
|---|---|
| Auditing, accounting, bookkeeping, and related representational services from chartered accountants, cost accountants, and company secretaries | 18 |
| Advisory, consultation, and legal representation services offered by advocates and other legal professionals | 18 |
| Dental, cosmetic surgeries, hair transplants, and other appearance-enhancing treatments by dentists and doctors | 18 |
| Engineering services | 18 |
| Services provided by film artists | 18 |
| Industrial, fashion, and other specialized designers | 18 |
| Services rendered by private tutors and coaching centers | 18 |
A professional who is registered under GST can claim input tax credit for eligible business expenses and is obligated to charge GST on client invoices. If their annual revenue does not exceed ₹50 lakh, they can opt for the Composition Scheme, which entails paying a reduced 6% GST with simplified return filing. However, professionals under this scheme cannot claim ITC or separately collect GST from their clients.
Registering for GST for Professional Services
The official GST portal facilitates a straightforward online registration procedure:
- Begin by generating a Temporary Reference Number (TRN) in the "New Registration" section. This requires providing your email address, PAN, and mobile number.
- Proceed to complete Part B of Form GST REG-01 by accurately entering business details, including the primary location, services offered, and bank account information.
- Upload all necessary supporting documents.
- Confirm the application using a Digital Signature Certificate (DSC) for businesses and Limited Liability Partnerships (LLPs), or an Aadhaar-based OTP for individuals and sole proprietorships.
- Upon successful submission, a Goods and Services Tax Identification Number (GSTIN) is issued. The final registration certificate is provided after document verification.
Failure to comply with GST registration requirements can result in penalties, legal action, and demand notices.
Required Documents for GST Registration
To complete GST registration, the following documents are essential:
- The PAN card of the company or individual.
- Proof of business establishment, such as a Certificate of Incorporation, Partnership Deed, or Certificate of Practice.
- Passport-sized photographs of the proprietor, directors, partners, or authorized signatories.
- Documents verifying the identity and address of the authorized signatory (e.g., driving license, passport, voter ID, or Aadhaar card).
- Proof of the principal place of business, which could be a rent agreement, property tax receipt, electricity bill, or a No-Objection Certificate (NOC) from the property owner.
- Bank account details, typically a recent bank statement or a cancelled cheque.
- Digital Signature Certificates (DSCs) are mandatory for LLPs and businesses. Individuals and proprietorships can finalize registration via Aadhaar OTP verification.
Calculating GST on Professional Services
The calculation of GST for professional services follows a simple methodology:
- Determine Taxable Value (V): This represents the total value of the professional service, encompassing all fees and incidental charges billed to the client, excluding the GST amount itself.
- Identify Relevant GST Rate (R): Ascertain the applicable GST rate for the specific service.
- Calculate Tax Amount (T):: Use the formula: T = V × R / 100.
- Compute Total Invoice Amount: Add the calculated tax amount (T) to the taxable value (V) to arrive at the final amount payable by the client.
GST has brought greater consistency and transparency to the taxation of professional services in India. Service providers must understand when GST registration is required, be aware of the correct tax rates, complete the registration process promptly, maintain accurate records, and correctly calculate GST to ensure full compliance with tax regulations.